(20 Pts.) 3. A medium sized municipality wants to develop an intelligent softwar
ID: 1107619 • Letter: #
Question
(20 Pts.) 3. A medium sized municipality wants to develop an intelligent software system to assist in project selection during the next 10 years. A life-cycle cost approach has been selected to categorize costs into development, programming, operating, and support costs for each alternative. There are three alternatives under consideration identified as A (tailored system), B (adapted system), and C (current system). The costs are summarized below. Using a present worth analysis and an interest rate of 10% per year, select the best alternative. Alternative Cost Component Cost $100,000 now, $150,000 year 1 45,000 now, $35,000 year $50,000 in years 1 through 10 30,000 in years 1 through 10 Development Programming Operation Support Development Programming Operation Support Operation $10,000 now $45,000 year 0, $30,000 year 1 $0,000 m ycars 1 hrough 10 40,000 in years I through 10 $150,000 in ycars I through 10Explanation / Answer
Answer:
Since the Net worth of the total cost is lowest i.e. $804,747.19 in case of A (Tailored System) as compare to other two system So System A should be selected
A (Tailored System)
Year
Development
Programming
Operation
Support
Total Cost
Disc. Factor 1/(1+.1)^n
P.V.
0
1,00,000
45,000
1,45,000
1.00000
1,45,000.00
1
1,50,000
35,000
50,000
30,000
2,65,000
0.909091
2,40,909.09
2
50,000
30,000
80,000
0.826446
66,115.70
3
50,000
30,000
80,000
0.751315
60,105.18
4
50,000
30,000
80,000
0.683013
54,641.08
5
50,000
30,000
80,000
0.620921
49,673.71
6
50,000
30,000
80,000
0.564474
45,157.91
7
50,000
30,000
80,000
0.513158
41,052.65
8
50,000
30,000
80,000
0.466507
37,320.59
9
50,000
30,000
80,000
0.424098
33,927.81
10
50,000
30,000
80,000
0.385543
30,843.46
Net Worth of the Total Cost
8,04,747.19
B (Adapted System)
Year
Development
Programming
Operation
Support
Total Cost
Disc. Factor 1/(1+.1)^n
P.V.
0
10,000
45,000
55,000
1.00000
55,000.00
1
30,000
80,000
40,000
1,50,000
0.909091
1,36,363.64
2
80,000
40,000
1,20,000
0.826446
99,173.55
3
80,000
40,000
1,20,000
0.751315
90,157.78
4
80,000
40,000
1,20,000
0.683013
81,961.61
5
80,000
40,000
1,20,000
0.620921
74,510.56
6
80,000
40,000
1,20,000
0.564474
67,736.87
7
80,000
40,000
1,20,000
0.513158
61,578.97
8
80,000
40,000
1,20,000
0.466507
55,980.89
9
80,000
40,000
1,20,000
0.424098
50,891.71
10
80,000
40,000
1,20,000
0.385543
46,265.19
Net Worth of the Total Cost
8,19,620.78
B (Current System)
Year
Development
Programming
Operation
Support
Total Cost
Disc. Factor 1/(1+.1)^n
P.V.
0
-
-
-
1.00000
-
1
-
1,50,000
-
1,50,000
0.909091
1,36,363.64
2
1,50,000
-
1,50,000
0.826446
1,23,966.94
3
1,50,000
-
1,50,000
0.751315
1,12,697.22
4
1,50,000
-
1,50,000
0.683013
1,02,452.02
5
1,50,000
-
1,50,000
0.620921
93,138.20
6
1,50,000
-
1,50,000
0.564474
84,671.09
7
1,50,000
-
1,50,000
0.513158
76,973.72
8
1,50,000
-
1,50,000
0.466507
69,976.11
9
1,50,000
-
1,50,000
0.424098
63,614.64
10
1,50,000
-
1,50,000
0.385543
57,831.49
Net Worth of the Total Cost
9,21,685.07
Since the Net worth of the total cost is lowest i.e. $804,747.19 in case of A (Tailored System) as compare to other two system So System A should be selected
A (Tailored System)
Year
Development
Programming
Operation
Support
Total Cost
Disc. Factor 1/(1+.1)^n
P.V.
0
1,00,000
45,000
1,45,000
1.00000
1,45,000.00
1
1,50,000
35,000
50,000
30,000
2,65,000
0.909091
2,40,909.09
2
50,000
30,000
80,000
0.826446
66,115.70
3
50,000
30,000
80,000
0.751315
60,105.18
4
50,000
30,000
80,000
0.683013
54,641.08
5
50,000
30,000
80,000
0.620921
49,673.71
6
50,000
30,000
80,000
0.564474
45,157.91
7
50,000
30,000
80,000
0.513158
41,052.65
8
50,000
30,000
80,000
0.466507
37,320.59
9
50,000
30,000
80,000
0.424098
33,927.81
10
50,000
30,000
80,000
0.385543
30,843.46
Net Worth of the Total Cost
8,04,747.19
B (Adapted System)
Year
Development
Programming
Operation
Support
Total Cost
Disc. Factor 1/(1+.1)^n
P.V.
0
10,000
45,000
55,000
1.00000
55,000.00
1
30,000
80,000
40,000
1,50,000
0.909091
1,36,363.64
2
80,000
40,000
1,20,000
0.826446
99,173.55
3
80,000
40,000
1,20,000
0.751315
90,157.78
4
80,000
40,000
1,20,000
0.683013
81,961.61
5
80,000
40,000
1,20,000
0.620921
74,510.56
6
80,000
40,000
1,20,000
0.564474
67,736.87
7
80,000
40,000
1,20,000
0.513158
61,578.97
8
80,000
40,000
1,20,000
0.466507
55,980.89
9
80,000
40,000
1,20,000
0.424098
50,891.71
10
80,000
40,000
1,20,000
0.385543
46,265.19
Net Worth of the Total Cost
8,19,620.78
B (Current System)
Year
Development
Programming
Operation
Support
Total Cost
Disc. Factor 1/(1+.1)^n
P.V.
0
-
-
-
1.00000
-
1
-
1,50,000
-
1,50,000
0.909091
1,36,363.64
2
1,50,000
-
1,50,000
0.826446
1,23,966.94
3
1,50,000
-
1,50,000
0.751315
1,12,697.22
4
1,50,000
-
1,50,000
0.683013
1,02,452.02
5
1,50,000
-
1,50,000
0.620921
93,138.20
6
1,50,000
-
1,50,000
0.564474
84,671.09
7
1,50,000
-
1,50,000
0.513158
76,973.72
8
1,50,000
-
1,50,000
0.466507
69,976.11
9
1,50,000
-
1,50,000
0.424098
63,614.64
10
1,50,000
-
1,50,000
0.385543
57,831.49
Net Worth of the Total Cost
9,21,685.07
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