The more expensive system costs $10,000 more to install but saves Bookscape $5,000 a year. Using the 10% discount rate, we estimate the net present value of the differential cash flows as follows:

Net Present Value of Differential Cash Flows = - $10,000 + $5,000 [PV(A,10%,5 years)]

This net present value is equal to the difference between the net present values of the individual projects, and it indicates that the system that costs more up front is also the better system from the viewpoint of net present value. The internal rate of return of the differential cash flows is 41.04%, which is higher than the discount rate of 10%, once again suggesting that the more expensive system is the better one, from a financial standpoint.

Lessons From The Intelligent Investor

Lessons From The Intelligent Investor

If you're like a lot of people watching the recession unfold, you have likely started to look at your finances under a microscope. Perhaps you have started saving the annual savings rate by people has started to recover a bit.

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