A project will cost $45,000 to develop. When the system becomes operational, aft

Question

A project will cost $45,000 to develop. When the system becomes operational, after a one-year development period, operational costs will be $9,000 during each year of the system's five year useful life. The system will produce benefits of $30,000 in the first year of operation, and this figure will increase by a compound 10% each year.

Answer the following questions based on the background information provided and what you have learned from the toolkit:

What is the payback period of the project?

What is the ROI for this project?

What is the NPV for this project?

Based on the information you calculate, is this project feasible?

Explanation / Answer

Saving in First year = 30000
Net Saving =NNN-NN-NNNN= 21000

Saving in Second Year = 30000*1.10 = 33000
Net Saving=NNN-NN-NNNN= 24000

Cumulative Net Saving till second year = 21000 + 24000 = 45000

Since Cumulative Net Saving at the end of second year is equal to project cost, hence payback period is 2 Years.

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