PriceDeloitteYoung, an accounting firm is considering the replacement of its old accounting system with a new system that is expected to save $10,000 per annum in net cash operating costs. The old system has zero disposal value but could still be used for the next 5 years. The estimated useful life of the new system is 5 years with zero salvage value, and it will cost $40,000. The required rate of return is 14%.
Create a spreadsheet solution to answer the following. Include data and report areas. Use the Excel NPV function.
A. What is the payback period?
B. Calculate the NPV using the Excel NPV function.
C. What would be the NPV if the useful life was 3 years? Or 10 years?
D. Suppose the life will be 5 years but the savings will be $8,000 per annum instead of $10,000. Calculate the NPV.
E. Suppose the annual savings will be $9,000 for 4 years. Calculate the NPV.
F. Create a second version of each of the parts A through E above with your own changed numbers for all data inputs. Begin with the cost of the new system being $500,000 and make rational/sensible changes to all other data inputs.
G. Write a business report on how is this situation an example of sensitivity analysis and describe sensitivity analysis and its usefulness to management. Use your text and the Internet (about 400 words).
Paste two normal views and one formula view.
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