Question: Martin is working to develop a preliminary cost–benet analysis for a n

Question

Question: Martin is working to develop a preliminary cost–benet analysis for a new client-server system. He has identied a number of cost factors and       values for the new system, summarized in the following tables:
Development Costs—Personnel
2 Systems Analysts 400 hours/ea @ $50/hour
4 Programmer Analysts 250 hours/ea @ $35/hour
1 GUI Designer 200 hours/ea @ $40/hour
1 Telecommunications Specialist 50 hours/ea @ $50/hour
1 System Architect 100 hours/ea @ $50/hour
1 Database Specialist 15 hours/ea @ $45/hour
1 System Librarian 250 hours/ea @ $15/hour

Development Costs—Training
4 Oracle training registration $3500/student

Development Costs—New Hardware and Software
1 Development server $18,700 1 Server software (OS, misc.) $1500
1 DBMS server software $7500 7 DBMS client software $950/client

Annual Operating Costs—Personnel
2 Programmer Analysts 125 hours/ea @ $35/hour
1 System Librarian 20 hours/ea @ $15/hour

Annual Operating Costs—Hardware, Software, and Misc.
1 Maintenance agreement for server $995
1 Maintenance agreement for server $525
DBMS software
Preprinted forms 15,000/year @ $.22/form
The benets of the new system are expected to come from two sources: increased sales and lower inventory levels. Sales are expected to increase by $30,000 in the rst year of the system’s operation and will grow at a rate of 10% each year thereafter. Savings from lower inventory levels are expected to be $15,000 per year for each year of the project’s life. Using a format similar to the spreadsheets in this chapter, develop a spreadsheet that summarizes this project’s cash ow, assuming a four-year useful life after the project is developed. Compute the present value of the cash ows, using an interest rate of 9%. What is the NPV for this project? What is the ROI for this project? What is the break-even point? Should this project be accepted by the approval committee?

Explanation / Answer

COSTS-

PRESENT VALUE OF CASH FLOW

NPV= $115276.94-$143275.00= ($27998.06)

AVERAGE ROI PA.= 25.08%

As Project NPV IS Negative ($27998) hence this project should not be accepted.

BENFIT Year Incremental Sales Saving from Low Inventory Total Benfit 1 $30,000.00 $15,000.00 $45,000.00 2 $33,000.00 $15,000.00 $48,000.00 3 $36,300.00 $15,000.00 $51,300.00 4 $39,930.00 $15,000.00 $54,930.00

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.