Assignment 3: 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 SPA style guidelines.

Use the following file naming conventions:

MS Word: Last name First Initial_M1_A3.doc

MS Excel: Last name First Initial_M1_A3.Excel.ls

For example, if your name is John Smith, your document will be named Smith J_M1_A3.doc ( and Last name First Initial_M1_A3.Excel.ls)

By Wednesday, June 15, 2016, deliver your assignments to the M1: Assignment 3 Dropbox.

Assignment 3 Grading Criteria
Maximum Points
Calculated the NOV of the project correctly, explaining the results clearly
20
Calculated the IRE of the project correctly, explaining the results clearly
20
Calculated the Payback Period of the project correctly, explaining the results clearly
20
Calculated the Discounted Payback Period of the project correctly, explaining the results clearly
20
Synthesized an effective, well-reasoned recommendation for improvement.
12
Used correct spelling, grammar, and punctuation and followed SPA style guidelines.
8
Total:
100