Develop a preliminary cost-benefit analysis

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Reference no: EM133510558

Assignment

Martin is working to develop a preliminary cost-benefit analysis for a new client-server system. He has identified a number of cost factors andvalues for the new system, summarized in the following tables:
Development Costs -- Personnel

2 Systems Analysts 400 hours/each @ $50/hour
4 Programmer Analysts 250 hours/each @ $40/hour
1 GUI Designer 200 hours/each@$50/hour
1 Telecommunications Specialist 50 hours/each @ $50/hour
1 System Architect 100 hours/each @ $60/hour
1 Database Specialist 15 hours/each @ $50/hour
1 System Librarian 250 hours/each @ $20/hour
Development Costs -- Training

4 Oracle training registration $3500/student
Development Costs -- New Hardware and Software

1 Development server $19,800
1 Server software (OS, misc.) $2000
1 DBMS server software $8000
7 DBMS Client Software $980/client
Annual Operating Costs -- Personnel

2 Programmer Analysts l25 hours/each @ $50/hour
1 System Librarian 15 hours/each @ $20/hour
Annual Operating Costs-Hardware, Software, and Misc.

1 maintenance agreement for server $1200
1 maintenance agreement for DBMS software $500
Preprinted forms 15,000/year @ $.25/form

The benefits of the new system are expected to come from two sources: increased sales and lower inventory levels. Sales are expected to increase by $40,000 in the first year of the system's operation and will grow at a rate of 18% each year thereafter. Savings from lower inventory levels are expected to be $17,500 per year for each year of the project's life.

All development is completed in current year. Operations and benefits start from next year to today.

Using a format similar to the spreadsheets in this chapter, develop a spreadsheet that summarizes this project's cash flow, assuming a 4-year useful life after the project is developed. Compute the present value of the cash flows, using an annual interest rate of 8%.

Question: 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?

Reference no: EM133510558

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