In recent years companies have devoted considerable time trying to decide if new software systems should be purchased. Vendors trying to sell the systems in question are happy to provide their own analysis to the prospective buyer showing how profitable their system will be. Not surprisingly, buyers are often skeptical of the objectivity of such analysis, and prefer to do their own. “Sizing Up Your Payoff,” BusinessWeek, October 29, 2001, presents anecdotal evidence about problems companies have encountered when evaluating the profitability of proposed software systems. Read this article and complete the following requirements.

Required

a. The focus of the article is on “return on investment” (ROI) analysis. Of the four techniques presented in this chapter for analyzing capital projects, which do you think is most closely related to the ROI analysis discussed by the article?

b. Give an example from the article of a company that appears to be using the payback method, at least in part, for capital budgeting decisions.

c. Give an example from the article of a company that appears to be using the internal rate of return method, at least in part, for capital budgeting decisions.

d. Give an example from the article of a company that used a post audit to evaluate a capital budgeting decision it had made. What were the results of this post audit?

e. The article discusses a capital project study that Metreo, Inc., undertook before buying a software system. How long did this study take? How many employees were asked to provide input into the analysis?