An information system will cost $95,000 to implement over a one-year period and will produce no savings during that year. When the system goes online the following year, the company will save $30,000 during the first year of operation. For the next four years, the savings will be $20,000 per year. Assuming a 5 percent discount rate, what is the NPV of the system

Given:

initial cost $95,000 to implement over a one-year period and will produce no savings during that year.

the company will save $30,000 during the first year of operation.

For the next four years, the savings will be $20,000 per year.

5 percent discount rate

Year Future Value Factor Present Value

0 (95,000)

1 30,000 (1+0.05) ¹ 28,571.43

2 20,000 (1+0.05) ² 18,140.59

3 20,000 (1+0.05) ³ 17,276.75

4 20,000 (1+0.05) ⁴ 16,454.05

5 20,000 (1+0.05) ⁵ 15,670.52

Net Present Value 1,113.34

Present Value = Future Value / Factor

The NPV of the system is 1,113.34