Calculate payback period and net present value

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Reference no: EM131186279

Two new production scheduling information systems for Ferro Corporation could be developed at a cost of $105,000 and $135,000 respectively. Interest rate is 15%. The estimated net operating costs and estimated net benefits over five years of operation would be:

Project A

                        Estimated Net            Estimated Net           

Year                Operating Costs         Benefits

0                      $ 105,000                    0

1                      $     3,500                    $26,000

2                      $     4,700                    $34,000

3                      $     5,500                    $41,000

4                      $     6,300                    $55,000

5                      $     7,000                    $66,000

Project B

                        Estimated Net            Estimated Net           

Year                Operating Costs         Benefits

0                      $ 135,000                    $12,500

1                      $     3,800                    $21,500

2                      $     4,900                    $32,300

3                      $     5,800                    $35,300

4                      $     6,700                    $44,100

5                      $     7,800                    $61,000

Calculate payback period (PBP), net present value (NPV), and internal rate of return (IRR).

Which project do you recommend for development? Support your recommendation.

Please use the provided Excel template for this assignment.

Note: Interest Rate = (r + pt) = 15%

Reference no: EM131186279

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