Question

Champlain Corp. management is investigating two computer systems. The Alpha 8300 costs $2,761,825 and will generate cost savings of $1,186,025 in each of the next five years. The Beta 2100 system costs $4,207,500 and will produce cost savings of $1,217,750 in the first three years and then $2 million for the next two years. If the company’s discount rate for similar projects is 14 percent:

What is the NPV for the two systems? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round answers to 0 decimal places, e.g. 5,275.)

NPV of Alpha system		$
NPV of Beta system		$

Which one should be chosen based on the NPV?

Champlain should chose the

Alpha 8300Beta 2100

system.

Answer 1

Formulas Used:-

Discount rate	0.14
	Cashflow
Year	Alpha 8300	Beta 2100
0	-2761825	-4207500
1	1186025	1217750
2	1186025	1217750
3	1186025	1217750
4	1186025	2000000
5	1186025	2000000
NPV	=NPV($C$1,B5:B9)+B4	=NPV($C$1,C5:C9)+C4

so we should choose Alpha 8300 because it has higher netpresent value.