Question

Find the Net Present Value and Benefit Cost Ratio for the following: An investment in new...

Find the Net Present Value and Benefit Cost Ratio for the following:

  1. An investment in new software is expected to have the following cash flows over a three-year period. The discount rate is 12 percent?

Year Cash Flow

0 -$28,900

1   $12,450

2   $19,630

3   $ 2,750

**Mainly Benefit Cost Ratio

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Homework Answers

Answer #1

Cash Flows:
Year 0 = -$28,900
Year 1 = $12,450
Year 2 = $19,630
Year 3 = $2,750

Discount Rate = 12%

Present Value of Cash Inflows = $12,450/1.12 + $19,630/1.12^2 + $2,750/1.12^3
Present Value of Cash Inflows = $28,722.38

Net Present Value = Present Value of Cash Inflows - Initial Investment
Net Present Value = $28,722.38 - $28,900
Net Present Value = -$177.62

Benefit Cost Ratio = Present Value of Cash Inflows / Initial Investment
Benefit Cost Ratio = $28,722.38 / $28,900
Benefit Cost Ratio = 0.99

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