NPV, Payback Period
Not what you're looking for?
Philadelphia Physicians is considering the replacement of an old billing system with new software that should save $5,000 per year in net cash operating costs. The old system has zero disposal value, but it could be used for the next 12 years. The estimated useful life of the new software is 12 years, and it will cost $25,000. The minimum desired rate of return is 10%
1) What is the payback period?
2) Compute the net present value (NPV)
3) Management is unsure about eh useful life. What would be the NPV if the useful life were (a) 5 years instead of 12 or (b) 20 years instead of 12?
4) Suppose the life will be 12 years, but the savings will be $3,500 per year instead of $5,000. What would be the NPV?
5) Suppose the annual savings will be $4,000 for eight years. What would be the NPV?
Purchase this Solution
Solution Summary
The solution calculates NPV, Payback Period.
Solution Preview
Philadelphia Physicians is considering the replacement of an old billing system with new software that should save $5,000 per year in net cash operating costs. The old system has zero disposal value, but it could be used for the next 12 years. The estimated useful life of the new software is 12 years, and it will cost $25,000. The minimum desired rate of return is 10%
1) What is the payback period?
Increase in cash flow as a result of savings in operating cash flows= $5,000
Initial investment= $25,000
Therefore, Payback period= 5 years =25000/5000
2) Compute the net present value (NPV)
PVIFA= Present Value ...
Purchase this Solution
Free BrainMass Quizzes
Change and Resistance within Organizations
This quiz intended to help students understand change and resistance in organizations
Income Streams
In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.
Situational Leadership
This quiz will help you better understand Situational Leadership and its theories.
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.
Paradigms and Frameworks of Management Research
This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.