Riverbend Software Support Administrators (RSSA) Riverbend Software Support Admi
ID: 2788311 • Letter: R
Question
Riverbend Software Support Administrators (RSSA) Riverbend Software Support Administrators (RSSA) provides online and telephone help desk services. Because RSSA's labor costs have steadily increased, it is outsourcing its call center. RSSA's executive-level committee, who oversees the information systems (IS) function, selected a project development team to crease a system to move the help desk and manage it from corporate headquarters. Two incidents delayed the help desk conversion date by 15 days. A server was damaged when an unidentified employee put a hot coffee pot on it, and several backup tapes were found floating in a restroom sink. The five-year contract requires an initial payment of $1,750,000 and yearly payments of $525,000. Each year, the contract will save $750,000 in salary, benefits, and equipment costs. There is a $150,000 one-time charge for breaking the current call center's building lease, but doing so will save $360,000 a year. RSSA's cost of capital is 11%. REQUIRED: a. What is the executive-level committee commonly called, who typically serves on it, and what is its primary function? b. Who typically serves on the project development team? c. What steps would the development team take during system analysis? d. Why do you think the server and data tapes were damaged? e. Calculate the following capital budgeting metrics for RSSA's outsourcing plan: 1. payback period 2. net present value (NPV) 3, internal rate of return (IRR)
Explanation / Answer
A.)What is the executive-level committee commonly called, who typically serves on it, and what is its primary function?
Answer:-Riverbend Software Support Administrators (RSSA) provides online and telephone help desk services. Because RSSA's labor costs have steadily increased, it is outsourcing its call center. RSSA's executive-level committee, who oversees the information systems (IS) function, selected a project development team to crease a system to move the help desk and manage it from corporate headquarters.
B.) Who typically serves on the project development team?
Answer: RSSA's executive-level committee.
C.)What steps would the development team take during system analysis?
Answer:-RSSA’s development team will do an initial assessment of management plan to moving the help desk. They will survey the existing system to determine what it does , what the company should to continue to use, and what should be changed for the new system. They will complete a feasibility analysis to determine the technical, operational, legal, scheduling and economic feasibility of the new system. Then the team will determine the system’s information need and requirements. Lastly the team will prepare a system analysis report.
D.)Why do you think the server and data tapes were damaged?
Answer:- Change is usually difficult for people and organization. When operational are outsourced, employees can lose their jobs. Apparently some employees exhibition aggressive behavior towards the new system.
E.) i) Pay back Period:- Payback period (PP) is the number of years it takes for a company to recover its original investment in a project, when net cash flow equals zero. In the calculation of the payback period, the cash flows of the project must first be estimated. The payback period is then a simple calculation.
PP = years full recovery + unrecovered cost at beginning of last year
in that case it took 25% of the year ((1450000/585000) ot 3.25 year to get to payback.
ii.) Net present value (NPV) :-
Net present value (NPV) is a method of determining the current value of all future cash flows generated by a project after accounting for the initial capital investment. It is widely used in capital budgeting to establish which projects are likely to turn the greatest profit.
The formula for NPV varies slightly depending on the consistency with which returns are generated. If each period generates returns in equal amounts, the formula for the net present value of a project is:
NPV = C x {(1 - (1 + R)-T) / R} Initial Investment
where C is the expected cash flow per period, R is the required rate of return, and T is the number of periods over which the project is expected to generate income.
However, many projects generate revenue at varying rates over time. In this case, the formula for NPV is:
NPV = (C for Period 1 / (1 + R)1) + (C for Period 2 / (1 + R)2) ... (C for Period x / (1 + R)x) - Initial Investment
The project with positive NPV earn an estimated return in excess of the company’s discount rate and are financially feasible. This project has NPV value $262100 and the project would likely to be acceptable to management.
3, internal rate of return (IRR):-
Internal rate of return (IRR) is a metric used in capital budgeting measuring the profitability of potential investments. Internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. IRR calculations rely on the same formula as NPV does.
Ct = net cash inflow during the period t
Co= total initial investment costs
r = discount rate, and
t = number of time periods
To calculate IRR using the formula, one would set NPV equal to zero and solve for the discount rate r, which is here the IRR. Because of the nature of the formula, however, IRR cannot be calculated analytically, and must instead be calculated either through trial-and-error or using software programmed to calculate IRR.
The NPV calculation does not calculate as estimated rate of return. The IRR for this project is 16.35% (rounded.)
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