Interview Guides
You are reviewing a proposed internal software build for a mid-sized insurance business that expects to automate a manual reconciliation workflow. The CFO wants to know whether the project creates value under IFRS, since the development spend would be capitalized and then amortized over time. You have one year of build costs, five years of post-launch cash inflows, and a 10% discount rate.
| Metric | Value |
|---|---|
| Initial development spend (Year 0) | $2,400,000 |
| Capitalization rate | 80% |
| Amortization period | 5 years |
| Annual post-launch operating cash inflow | $720,000 |
| Annual maintenance cash outflow | $180,000 |
| Discount rate | 10% |
| Terminal value at end of Year 5 | $0 |
What is the project’s NPV, and would you recommend proceeding with the build? How would your conclusion change if annual operating cash inflow were 10% lower or 10% higher?