Developing a preliminary cost benefit

Martin is working to develop a preliminary costAc?obenefit analysis for a system. He has identified a number of cost factors and values for the new system, summarized in the following tables:


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 @ a$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 CostsAc??Training

4 Oracle training registration $3500/student

Development CostsAc??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 CostsAc??Personnel

2 Programmer Analysts 125 hours/ea @ $35/hour

1 System Librarian 20 hours/ea @ $15/hour

Annual Operating CostsAc??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 =$3300/year

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 $60000 in the first year of the systemAc?cs 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 projectAc?cs life.

Using a format similar to the spreadsheets in this chapter, develop a spreadsheet that summarizes this projectAc?cs cash flow, assuming a after the project is developed. Compute the present value of the cash flows, using an interest rate of 6%.

1. What is the NPV for this project?

2. What is the ROI for this project?

3. What is the break-even point? Should this project be accepted by the approval committee?

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