Question
Based on the information provided, calculate the NPV of this project using 6% cost of capital. Calculate a Return on Investment (ROI). I need the
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Based on the information provided, calculate the NPV of this project using 6% cost of capital.
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Calculate a Return on Investment (ROI).
I need the answers for 3 and 4 if possible.
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Calculate the Payback Period for the ERP system
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Is this a good investment based on the above calculations?
Carter Electronics, a distributor of semiconductors and electrical components, is considering implementing an ERP system. This project will represent a huge investment for Carter and thus a business case must be developed in order to gain approval for the project. With the help of knowledgeable process owners, a group of individuals who will likely be on the project team, and IT staff, the managerial accountants put together the following total cost of ownership and benefits over a 5-year horizon (the time estimated that the system will be used until a major upgrade). Carters cost of capital is 6%.
Item Technology Hardware and infrastructure upgrades ERP software contract value Recurring software maintenance -level 3 support Database and Identity and Access Management Software ESTIMATED TCO One Time $450,000 $2,000,000 $225,000 Recurring $360,000 Comments Costs for serversetwork/wiring/redundancy Expected negotiated net price 18% of software contract value (low end of maintenance) Estimated for MS SQL Server and any of the top 5 IAM systems, which are priced similarly People Internal Project Team Change Management (consultants) Project management (consultants) Configuration/customization of ERP software (consultants) Contingency - 15% $2,100,000 $500,000 $1,600,000 $1,700,000 15% $180,000 $100,000 Six full-time equivalent people; Center of Excellence - two full time people for 5 years Includes costs for communication, education, training; ongoing 2 years Integrated project plan, budget etc. Adapting the software to use in the company/filling gaps 15% buffer on all one-time costs to avoid surprises. Data Inventory master data accuracy and BOM master data All other master data scrubbing Writing interface programs Recurring data maintenance Writing data conversion programs $350,000 $200,000 $275,000 $285,000 $140,000 This data is in 2 different systems currently. Deemed to have major data duplication issues. Need scrubbing and restructuring into new format. Scrubbing customer, vendor, employee Multiple legacy systems will remain (e.g., fixed assets) 2 full time persons for master data maintenance (ongoing 5 years) Convert data to ERP format and migrate Item Technology Hardware and infrastructure upgrades ERP software contract value Recurring software maintenance -level 3 support Database and Identity and Access Management Software ESTIMATED TCO One Time $450,000 $2,000,000 $225,000 Recurring $360,000 Comments Costs for serversetwork/wiring/redundancy Expected negotiated net price 18% of software contract value (low end of maintenance) Estimated for MS SQL Server and any of the top 5 IAM systems, which are priced similarly People Internal Project Team Change Management (consultants) Project management (consultants) Configuration/customization of ERP software (consultants) Contingency - 15% $2,100,000 $500,000 $1,600,000 $1,700,000 15% $180,000 $100,000 Six full-time equivalent people; Center of Excellence - two full time people for 5 years Includes costs for communication, education, training; ongoing 2 years Integrated project plan, budget etc. Adapting the software to use in the company/filling gaps 15% buffer on all one-time costs to avoid surprises. Data Inventory master data accuracy and BOM master data All other master data scrubbing Writing interface programs Recurring data maintenance Writing data conversion programs $350,000 $200,000 $275,000 $285,000 $140,000 This data is in 2 different systems currently. Deemed to have major data duplication issues. Need scrubbing and restructuring into new format. Scrubbing customer, vendor, employee Multiple legacy systems will remain (e.g., fixed assets) 2 full time persons for master data maintenance (ongoing 5 years) Convert data to ERP format and migrateStep by Step Solution
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