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QUESTION

Time Value of Money Calculations

The IT department has requested an update in its server population. This upgrade is required to maintain a competitive position. The CEO has asked that you evaluate the project and submit a recommendation to her, in terms of whether the company should move forward with this request. The calculated value of the project is a reduction of expenses, including power and replacement costs, as shown in Table-1:

Year

Decrease in Expenses

1$30,000.00

2$100,000.00

3$120,000.00

4$100,000.00

5$30,000.00

Assume the impact after five years to be immeasurable.  The cost of capital to the firm is currently 8% and the cost of the project today is $286,000.Required:

  • Calculate the net present value of the project
  • Calculate the internal rate of return
  • Calculate the payback period
  • Calculate the discounted payback period

Submit an Excel file with your calculations, and a 2-to-5-page paper that explains the calculations and provides your final assessment and decision. Justify your recommendations. The paper must be submitted as a Word document and it must follow APA style guidelines.

Use the following file naming conventions: MS Word: LastnameFirstInitial_M1_A3.doc MS Excel: LastnameFirstInitial_M1_A3.Excel.xls

For example, if your name is John Smith, your document will be named SmithJ_M1_A3.doc ( and LastnameFirstInitial_M1_A3.Excel.xls)

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