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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. 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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