Question

# Perform a financial analysis for a project using the format provided in Figure 4-5. Assume that...

Perform a financial analysis for a project using the format provided in Figure 4-5. Assume that the projected costs and benefits for this project are spread over four years as follows: Estimated costs are \$200,000 in Year 1 and \$30,000 each year in Years 2, 3, and 4. Estimated benefits are \$0 in Year 1 and \$100,000 each year in Years 2, 3, and 4. Use a 10 percent discount rate, and round the discount factors to two decimal places. Create a spreadsheet or use the business case financials template on the companion website to calculate and clearly display the NPV, ROI, and year in which payback occurs. In addition, write a paragraph explaining whether you would recommend investing in this project, based on your financial analysis

 Year Projected Benefits Projected cost Net benefit PVF (10%) PVCF 1 0 200000 -200000 0.91 -181818 2 100000 30000 70000 0.83 57851.24 3 100000 30000 70000 0.75 52592.04 4 100000 30000 70000 0.68 47810.94 Net Present Value -23564

ROI = Average net benefit / Average cost

= (75000 - 72500) / 72500

= 3.33%

Year in which payback occurs

 Year Projected Benefits Projected cost Net benefit Cumulative net benefits 1 0 200000 -200000 -200000 2 100000 30000 70000 -130000 3 100000 30000 70000 -60000 4 100000 30000 70000 10000

Payback period = Year 3 + ( - 60000 - 0) / [ -60000 - 10000 ]

= 3.86 years

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