Beruflich Dokumente
Kultur Dokumente
Suppose you are studying two hardware lease proposals . Option 1 costs $4,000, but requires that the
entire amount be paid in advance. Option2 cost $5,000, but the payments can be made $1,000 now and
$1,000 per year for the next four years. If you do an NPV analysis assuming a 14 percent discount rate,
which proposal is less expensive?What happens if you use an eight percent rate?
At 14% factor:
Year 2
Lease Option 1
Factor
PV of lease cost
Year 1
4000
1
4000
Lease Option 2
Factor
PV of lease cost
1000
1
1000
1000
0.877
877
Year 3
Year 4
Year 5
Total
4000
1000
0.7695
769.5
1000
0.676
676
1000
0.592
592
3914.5
***Thus Option 2 is preferred if the discount rate is at 14% since it will cost below $4000.****
At 8% factor:
Year 1
Lease Option 1
Factor
PV of lease cost
4000
1
4000
Lease Option 2
Factor
PV of lease cost
1000
1
1000
Year 2
Year 3
Year 4
Year 5
Total
4000
1000
0.926
926
1000
0.857
857
1000
0.794
794
1000
0.735
735
4312
PM toolkit3-2
Assume the following facts:
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 systems 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. What is the payback period for this project?
( Show graph)
1. Using the same facts, what is the ROI for this project?
2. Using the same facts, what is the NPV for this project?
Operational cost
Benefits(10%)
1
9,000
30,000
2
9,000
33,000
3
9,000
36,300
4
9,000
39,930
5
9,000
43, 923
TOTAL
45,000
183153
Year
1
2
3
4
5
9,000
18,000
27,000
36,000
45,000
30,000
63,000
99300
139230
183153
Costs
Payback
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
0
3
Year