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A mobile services provider identified a project to develop a new virtual customer service chatbot to augment its human customer service representatives. The project is

A mobile services provider identified a project to develop a new virtual customer service chatbot to augment its human customer service representatives.

The project is estimated to cost $946,000. There will also be a net increase of $80,000 per year in ongoing operations and support costs, e.g., to make ongoing updates to the chatbot.

The annual benefits are described as:

  • Reduce customer defections by 1,750 per year. Each defection is estimated to cost the company $500.
  • Reduce service call costs by 20% from $1.2 million per year to $960,000 per year
  • Eliminate call-backs to customers because of failed service calls. In an average year, the number of call-backs has been 1.5 million per year with a cost of $0.46 per call-back

Submit your answers to the following: Excel format

  1. If the company's discount rate (i.e., its return on investment hurdle rate) is 8%, what is the net present value (NPV) for this project after 3 years of operation? Show your supporting calculations in your submission; if you prefer, you may include an Excel spreadsheet similar to what is shown in Chapter 2 of our text. Note that Appendix One of our text provides the answer to Chapter 2's Exercise 5, which is an NPV problem.
  2. Based on your NPV calculation, would you invest in this project? Explain why or why not in 1-3 sentences.

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