Two new production scheduling information systems for Ferro Corporation could be
ID: 437635 • Letter: T
Question
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).
Project A
Interest Rate 15%
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cost $(105,000) $(3,500) $(4,700) $(5,500) $(6,300) $(7,000)
Benefit 0 $26,000 $34,000 $41,000 $55,000 $66,000
Pay Back Period?
NVP?
IRR?
Project B
Interest Rate 15%
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cost $(135,000) $(3,800) $(4,900) $(5,800) $(6,700) $(7,800)
Benefit 12500 $21,500 $32,300 $35,300 $44,100 $61,000
Pay Back Period?
NVP?
IRR?
Which project do you recommend for development? Support your recommendation.?
Note: Interest Rate = (r + pt) = 15%
Explanation / Answer
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: <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /?>
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% (prefer to page 86 in Pinto
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