CMA Final · Strategic Financial Management · Digital Finance
A blockchain-based settlement system will cost ₹5,00,00,000 now and save ₹1,80,00,000 per year in reconciliation costs for 4 years, with no residual value. The firm's cost of capital is 10%. The 4-year annuity factor at 10% is 3.1699. What is the NPV?
The NPV is ₹70,58,200. Present value of the savings is ₹1.8 crore times 3.1699, equal to ₹5,70,58,200, and subtracting the ₹5 crore investment leaves a positive NPV, so the project is acceptable.
- A₹70,58,200Correct
- B₹2,20,00,000
- C₹1,70,58,200
- D₹5,70,58,200
Explanation
PV of savings = 1,80,00,000 x 3.1699 = ₹5,70,58,200. NPV = 5,70,58,200 - 5,00,00,000 = ₹70,58,200. Undiscounted net saving of ₹2,20,00,000 ignores time value; ₹5,70,58,200 is only the PV of inflows.
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