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TTU6414- MANAGEMENT INFORMATION SYSTEM Task 6 ANIS AKLIMA KAMARUDIN P68474


Answer the following question: 1. You have to decide whether a new screening system should be installed in your clinic. The estimated cash flows for the system are $2,000 for year 1, $4,000 for the next two years, and than $1,000 for the fourth year. It will cost $5,000 to start up this project and your CEO requires a 10% return. After four years, you will halt the system as the National Screening Center will be in place nationwide. Calculate the NPV, ROI and PP for this system. NPV PV Factors: Year 1 = 1 ÷ (1 + 10%)^1 ≈ 0.91 Year 2 = 1 ÷ (1 + 10%)^2 ≈ 0.83 Year 3 = 1 ÷ (1 + 10%)^3 ≈ 0.75 Year 4 = 1 ÷ (1 + 10%)^4 ≈ 0.68


Year Net Cash Inflow Total Cash Inflow Ă— Present Value Factor Present Value of Cash Flows Total PV of Cash Flow - Initial Investment Net Present Value

1 $2,000 $2,000 0.91 $1,820 $8,820 - 5,000 $3,820

2 $4,000 $4,000 0.83 $3,320

3 $4,000 $4,000 0.75 $3,000

4 $1,000 $1,000 0.68 $680

thousand

ROI ROI = total PV(gain from investment) - initial investment / initial investment = $8,820 - $5,000 / $5,000 = 0.76


Payback Period Year 0 1 2 3 4

Cash Flow (5000) 1820 3320 3000 680

Cumulative Cash Flow (5000) (3180) 140 3140 3820

Payback Period = 1 + ( |-$3,180| ÷ $3,320) = 1 + ( $3,180 ÷ $3,320) ≈ 1 + 0.96 ≈ 1.96 years


2. An initial investment of a project is $1,000. A cash flow for each of the first two years is $400, followed by $150 and $200 for the year 3 and 4. What is the payback period for this investment in the exact month and year?

Year 0 1 2 3 4

Cash Flow (1000) 400 400 150 200

Payback Period = 3 + ( |-$50| ÷ $200) = 3 + ( $50 ÷ $200) ≈ 3 + 0.25 ≈ 3.25 years ≈ 3.25 years x 12 ≈ 39 months

Cumulative Cash Flow (1000) (600) (200) (50) 150


Task 6  

TTU6414- answer the question abou NPV, ROI and PP

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