A company is considering two options for implementing ERP software that will last for five years. 1. Buy a license for the ERP software, purchase the hardware required to run it, and hire and train system administrators. 2. Use an Saas provider to run the ERP system over the Web, and pay a monthly fee for the ERP services. The costs for each option are given: Option 1: Buying computers and software rights for an ERP system Database server - $70,000 Application server - $45,000 PCS-10 additional PCs are needed. The total cost of these PCs is $25,000 Computer maintenance - A contract is needed that costs $4.000 monthly or $48,000 per year. Licensing rights - The cost is $400,000. This payment will occur in 2020 and cover through 2024. Installation - Consultants, that cost $1,500 per day, are needed for the initial implementation (that will occur over six months). The cost is estimated at $243,000. User training - Training classes will be held at the company during 2020. This cost is $16,000. Ongoing consulting - Additional consulting at $2,000 per day is needed periodically throughout the life of the system. This cost is estimated at $24,000 per year for 2021 through 2024. Network and database administrator - A full-time Network and database administrator is needed. The cost for this person is (salary and benefits) is $180,000 per year. Option 2: Using an Saas provider to deliver ERP Software PCS - 14 additional PCs are needed. The total cost of these PCs is $28,000 Computer maintenance - A contract is needed that costs $900 monthly or $10.800 per year (the contract is less expensive than under option 1 because no servers are purchased). Software through the Saas provider - The monthly cost of the software is $60,000 or $720,000 per year. User training - The Saas provider provides training for a fee. The estimated cost for this is $15,000 per year. Do a spreadsheet analysis on the costs for each option. What is the Net Present Value of each option using a 15% discount rate? A company is considering two options for implementing ERP software that will last for five years. 1. Buy a license for the ERP software, purchase the hardware required to run it, and hire and train system administrators. 2. Use an Saas provider to run the ERP system over the Web, and pay a monthly fee for the ERP services. The costs for each option are given: Option 1: Buying computers and software rights for an ERP system Database server - $70,000 Application server - $45,000 PCS-10 additional PCs are needed. The total cost of these PCs is $25,000 Computer maintenance - A contract is needed that costs $4.000 monthly or $48,000 per year. Licensing rights - The cost is $400,000. This payment will occur in 2020 and cover through 2024. Installation - Consultants, that cost $1,500 per day, are needed for the initial implementation (that will occur over six months). The cost is estimated at $243,000. User training - Training classes will be held at the company during 2020. This cost is $16,000. Ongoing consulting - Additional consulting at $2,000 per day is needed periodically throughout the life of the system. This cost is estimated at $24,000 per year for 2021 through 2024. Network and database administrator - A full-time Network and database administrator is needed. The cost for this person is (salary and benefits) is $180,000 per year. Option 2: Using an Saas provider to deliver ERP Software PCS - 14 additional PCs are needed. The total cost of these PCs is $28,000 Computer maintenance - A contract is needed that costs $900 monthly or $10.800 per year (the contract is less expensive than under option 1 because no servers are purchased). Software through the Saas provider - The monthly cost of the software is $60,000 or $720,000 per year. User training - The Saas provider provides training for a fee. The estimated cost for this is $15,000 per year. Do a spreadsheet analysis on the costs for each option. What is the Net Present Value of each option using a 15% discount rate
