Estimated net cash flows for a project expected life

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Reference no: EM131211209

Assume that you adopt a custom software package. Using present value tables, evaluate the cost vs. benefit of a system under the following scenario: The probable cost of the best package is estimated at $20 million to implement. While there are no benefits in the first year, you estimate the system will save the company a net of $4 million the second year after costs and $6 million for the next three years. Interest rate is 2%. Your cost vs. benefit analysis should indicate the total and yearly benefits and discounted costs. Will the project make money at the 2% interest rate? This exercise involves a capital budgeting decision using the net present value method. This method considers the estimated net cash flows for a project's expected life. You can use the following format for your analysis. Alternatively, you can list the years using a vertical format.

Year 1 Year 2 Year 3 Year 4 Year 5

Benefits

Discounted

Total Discounted

Value

Summarize your findings in an executive summary table with information for easy comparability.

Reference no: EM131211209

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