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 9 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.
Q E Tools Window Help 100% 2 Thu 4:47 PM Preview File Edit View Go Screen Shot 2019-06-20 at 4.42.00 PM Q Search Figure 4-5 JWD Consulting Net Present Value and Return on Investment Example Discount rate 8% Assume the project is completed in Year 0 Year 0 Total 1 2 3 Costs 140,000 40,000 40,000 40.000 0.86 0.79 Discount factor 1 0.93 Discounted costs 140,000 37,200 34,400 31,600 243,200 Benefits 0 200,000 200,000 200,000 0.86 Discount factor 0.93 0.79 Discounted benefits 0 186,000 172,000 158,000 516,000 Discounted benefits - costs (140,000) 148,800 137,600 126,400 272,800-NPV Cumulative benefits - costs (140,000) 8,800 146,400 272,800 ROI 112% Payback In Year 1 When calculating NPV, some organizations refer to the investment year or years for project costs as Year 0 and do not discount costs in Year 0. Other organizations start discounting.
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