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Homework answers / question archive / National Radio Association, a not-for-profit organization, is considering purchasing a new enterprise  software system for $85,000

National Radio Association, a not-for-profit organization, is considering purchasing a new enterprise  software system for $85,000

Accounting

National Radio Association, a not-for-profit organization, is considering purchasing a new enterprise 

software system for $85,000. This investment is projected to have an seven-year useful life, and a 

salvage value of $8,000; the investment is projected to save the organization approximately 

$18,000 each year in operating costs. In addition to the cost of the software system, the association

 needs an increase of $8,000 in net working capital (other than cash) in the first year, which will not

 be released (that is, converted back to cash) until the end of seven years.

Required:

1) What is the payback period for this proposed investment? (Assume that the cash flows, other than 

salvage value, occur evenly throughout the year. 

Round your answer to 2 decimal places, e.g., 2.452 years = 2.45 years.)

2) If the Association has a required rate of return of 10 percent, what is the net present value (NPV) of 

the proposed investment? Round your calculation to whole dollars (i.e., zero decimal points). 

(The PV annuity factor for 10% for 7 years is 4.868, 

while the PV $1 factor for 10% in 7 years is 0.513.)

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