Forum Description Perform a financial analysis for a project XY. Assume the proj

Question

Forum Description

Perform a financial analysis for a project XY. Assume the projected costs and benefits for this project are spread over four years as follows: Estimated costs are $300,000 in Year 1 and $50,000 each year in Years 2, 3, and 4. Estimated benefits are $0 in Year 1 and $180,000 each year in Years 2, 3, and 4. Use a 9 percent discount rate, and round the discount factors to two decimal places. Create a spreadsheet to calculate and clearly display the following:

         • NPV

         • ROI

         • The year in which payback occurs.

In addition, write a paragraph explaining whether you would recommend investing in this project, based on your financial analysis

Explanation / Answer

Perform a financial analysis for a project using the format provided . Assume the projected costs and benefits for this project are spread over four years as follows: Estimated costs are $130,000 in Year 1 and $50,000 each year in Year 2, 3, and 4. Estimated benefits are $0 in Year 1 and $80,000 each year in Year 2, 3, and 4. Use an 8 percent discount rate. Create a spreadsheet (or use the business case financials template provided on the companion Web site) to calculate and clearly display the NPV, ROI, and year in which payback occurs. In addition, write a paragraph explaining whether you would recommend investing in this project, based on your financial analysis.

Understanding the economic climate and rapid pace of change in businesses and technologies, top management usually have certain recommendations for the length of the payback period of an project investment or appeal to focus on delivering positive financial result quickly while they create a project plan, then they might require all information technology projects to have a payback period of less than two years or even one year, regardless of the estimated NPV or ROI. However, because sometimes many crucial projects cannot achieve a payback so quickly or reap a profit in a short time period, that is top management worries and don’t want to continue investing the project, therefore, the organization must also consider positive long-range goals when making technology investments. Consequently, according to this financial analysis results as shown in financial analysis and charting the payback period, the estimated NPV=41,740, ROI=25% and the cumulative benefits in payback chart is going to have positive number in fourth year. Even though this project needs three years more than two years to get benefits, but I would recommend investing in this project based on this financial analysis, because its calculated cash flow is positive growth.

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