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Granny's Choice - NPV

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A food company called 'Granny's Choice' wants to introduce a new computer system for its perishable products warehouse. The costs and benefits are as follows:
Years Costs Benefits

1 33,000 21,000
2 34,600 26,200
3 36,300 32,700
4 38,100 40,800
5 40,000 51,000
6 42,000 63,700

a)Given a discount rate of 8 percent (0.08), perform present value analysis on the data for 'Granny's Choice'.
(Please use the formula
1
(1+i)n to find the multipliers for years 1to 6, where 'i' represents the discount rate and 'n' represents the number of periods).

b) What is your recommendation for 'Granny's Choice'?

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b) Since the Net Present Value ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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  • "What does 1 and 0 means in the repair column?"
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  • "Thank you, this helped a lot. I was not sure how to plug in those numbers to a formula. This was a great help. Now I have to figure out how to explain cost of capital is used in net present value analysis, and how cost of capital is used in net present value analysis. This stuff gets confusing."
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