Creating Effective Information Systems


NPV can be computed by subtracting the PV of cash outflows from the PV of cash inflows. The idea is to compare the current value of money to the future value of an equivalent amount of money while accounting for the economy's inflation rate. NPV is used by investors to determine the profitability of an investment project. The NPV rule is to accept projects if they yield positive NPV and reject if they yield negative NPV (Brigham & Houston, 2013). In our case example, the company should accept the project because it yields a positive NPV of $571,343.17.


IRR is the discount rate that equates the NPV of future cash flows from a project to zero. It is the intrinsic value of return derived from an investment by taking into account the amount and time of the associated cash flows. In our case, the IRR is 45%, which means that the project will on average generate an annual return of 45% over its life. The rule of the thumb is to accept a project if the discount rate is lower than the IRR (Brigham & Houston, 2013). Therefore, using the IRR, the company should accept the IS projects.

Loan Offer

By considering the loan offer, it is evident that the new discount rate reduces NPV to $376,421.78. However, NPV remains positive. Therefore, the company should accept the loan offer because the NPV remains positive and the IRR is higher than 15%. The loan generates positive NPV.


Brigham, E. F., & Houston, J. F. (2013). Fundamentals of Financial Management. Mason, Ohio: South-Western Centage Learning.

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