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.