PROJECT 1 - As a large construction company IT manager you have been asked to decide if the company should invest in an upgrade to the servers that support your engineering department. If you stick with the current system, annual energy costs are $85,320, annual maintenance costs are $190,000, and the annual software licenses are $26,500 per year. For the upgrade, the investment required is $469,480 and the company’s cost of capital is 7%. The investment would cut all of your annual costs by 52% for 5 years.
PROJECT 2 - Now your boss gets excited about the cloud and says she wants you to consider signing up with a hosting service instead of buying new server equipment. It will cost you $131,700 to scrap your existing equipment and tear out the server rooms, and cost you $241,630 per year for hosting services. Include a cash flow table from your excel spreadsheet, include investments, annual costs, cash flow, and cumulative cash flow throughout the duration of 5 years
Calculate the NPV for each of the two proposed projects in question 1 and question 2 and compare the results. Include the table of values from your excel spreadsheet used to calculate the NPVs. Which one do you choose and why?