Break Even Analysis In this individual assignment you will strengthen the skills to construct spreadsheet-based break-even analyses, which you learned in the lab exercise. Based on our class discussions, you know that information systems enable business solutions, enhance competitiveness and increase the profitability of organizations. The goal of this assignment is to introduce you to some of the basic issues involved in determining the potential profitability of implementing a new information system, evaluating the financial feasibility of an IS project, and/or justifying the value of IT to management. In addition, you will have the opportunity to apply and enhance your spreadsheet skills. Furthermore, in this assignment, you will practice skills that you will use for your team project later in the semester. Analysis 1: Renown Server Virtualization For this analysis you are to evaluate a proposal for Renown Medical Center to optimize their data center by virtualizing their existing servers. Use the following facts to conduct a break-even analysis of the virtualization technology assuming that all of the virtualization takes place in 2021. Costs It is estimated that virtualization will reduce the number of servers required in Renown's data center by a ratio of 4 to 1. That means for every 4 physical servers running applications the virtualization process will enable just 1 physical server to run the same set of applications. ? Renown currently has 100 physical servers in their data center. In 2020 virtualization software will be installed on each of the physical servers that are to be retained for virtualization. The licensing cost of the virtualization software is $7,400 per server per year. The virtualization software provider will also software services for Renown's data center at a cost of $25,000 per year. [7] In 2020 there will be a onetime cost of $55,000 to train Renown's IT staff on the virtualization software. Benefits The reduction in servers due to virtualization is expected to save Renown $750 per server in maintenance costs, each year, for each of the servers that will no longer be required. The reduction in servers from the virtualization process is also expected to save Renown $700 per server in electricity and cooling costs each year, for each of the servers that will no longer be required. Physical servers have a limited life expectancy and must eventually be replaced. Therefore, by not having to replace as many servers each year, the cost of the replacements that are no longer required, will become a benefit for Renown. Servers have a four years life expectancy and Renown replaces 25% of their servers each year. The hardware cost to replace each physical server is $5,500. Due to virtualization, Renown will save on the replacement cost for the servers that became redundant due to virtualization. Renown will also save on the labor cost to procure and deploy each physical server they would not need to replace. This amounts to $850 per server that does not require replacement. Calculations The break even analysis will cover a 4 year period from 2021-2024. For each year: Calculate the system costs. 2 Calculate the system benefits. Calculate the net benefits of the system. Calculate the break even total for the system. For the total time period: 2 Calculate the net present value (NPV) of the investment using a rate of 15%. 2 Calculate the internal rate of return (IRR). At the bottom of your spreadsheet add the two questions below and include your answer to them: 0 In what year will Renown break even on this project? ? Based on their required rate of return of 15%, should Renown go forward with this project? Break Even Analysis In this individual assignment you will strengthen the skills to construct spreadsheet-based break-even analyses, which you learned in the lab exercise. Based on our class discussions, you know that information systems enable business solutions, enhance competitiveness and increase the profitability of organizations. The goal of this assignment is to introduce you to some of the basic issues involved in determining the potential profitability of implementing a new information system, evaluating the financial feasibility of an IS project, and/or justifying the value of IT to management. In addition, you will have the opportunity to apply and enhance your spreadsheet skills. Furthermore, in this assignment, you will practice skills that you will use for your team project later in the semester. Analysis 1: Renown Server Virtualization For this analysis you are to evaluate a proposal for Renown Medical Center to optimize their data center by virtualizing their existing servers. Use the following facts to conduct a break-even analysis of the virtualization technology assuming that all of the virtualization takes place in 2021. Costs It is estimated that virtualization will reduce the number of servers required in Renown's data center by a ratio of 4 to 1. That means for every 4 physical servers running applications the virtualization process will enable just 1 physical server to run the same set of applications. ? Renown currently has 100 physical servers in their data center. In 2020 virtualization software will be installed on each of the physical servers that are to be retained for virtualization. The licensing cost of the virtualization software is $7,400 per server per year. The virtualization software provider will also software services for Renown's data center at a cost of $25,000 per year. [7] In 2020 there will be a onetime cost of $55,000 to train Renown's IT staff on the virtualization software. Benefits The reduction in servers due to virtualization is expected to save Renown $750 per server in maintenance costs, each year, for each of the servers that will no longer be required. The reduction in servers from the virtualization process is also expected to save Renown $700 per server in electricity and cooling costs each year, for each of the servers that will no longer be required. Physical servers have a limited life expectancy and must eventually be replaced. Therefore, by not having to replace as many servers each year, the cost of the replacements that are no longer required, will become a benefit for Renown. Servers have a four years life expectancy and Renown replaces 25% of their servers each year. The hardware cost to replace each physical server is $5,500. Due to virtualization, Renown will save on the replacement cost for the servers that became redundant due to virtualization. Renown will also save on the labor cost to procure and deploy each physical server they would not need to replace. This amounts to $850 per server that does not require replacement. Calculations The break even analysis will cover a 4 year period from 2021-2024. For each year: Calculate the system costs. 2 Calculate the system benefits. Calculate the net benefits of the system. Calculate the break even total for the system. For the total time period: 2 Calculate the net present value (NPV) of the investment using a rate of 15%. 2 Calculate the internal rate of return (IRR). At the bottom of your spreadsheet add the two questions below and include your answer to them: 0 In what year will Renown break even on this project? ? Based on their required rate of return of 15%, should Renown go forward with this project