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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
- 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.
- Based on your NPV calculation, would you invest in this project? Explain why or why not in 1-3 sentences.
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