COMPUTER SCIENCE TRIPOS Part II – 2015 – Paper 7
Business Studies (JAL)
(a) Explain the concept of Net Present Value (NPV) and include a description of
how it is calculated. [5 marks]
(b) You are asked to help prepare a bid, under the Private Finance Initiative (PFI)
to develop, install and maintain for 4 years, a patient information system for a
hospital. The hospital Trust will pay the bid amount in 5 equal annual payments
at the beginning of each year. Your development team estimates development
and installation will cost £1M and maintenance £100k per annum. Which of the
following bids: £1500k, £1600k or £1700k should your team submit, assuming
a discount rate of 10% per annum? Show your working. [10 marks]
(c) Draw up a cash flow for this project. How much funding is needed assuming a
loan interest rate of 10% per annum? [5 marks]