Martin is working to develop a preliminary cost–benefit analysis for a new client-server system. He has identified 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 =$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 $30,000 in the first 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 flow, assuming a four-year useful life after the project is developed. Compute the present value of the cash flows, 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?