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.