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Calculations (rows 24 to 55) : Calculate intermediate results of benefits (cash inflows) and costs (cash outflows) for NPV analysis. Number of U.S. employees (row
Calculations (rows 24 to 55): Calculate intermediate results of benefits (cash inflows) and costs (cash outflows) for NPV analysis.
- Number of U.S. employees (row 24): If the off-shoring agreement were not taken, this is the number of non-supervisory U.S. staff needed. There were 800 U.S. call centre employees in 2020, and it is expected to increase 2% per year (that is 2% more than previous year) due to expected banking business growth. Note that the number of employees must be an integer.
- Number of Indian employees (row 25): If the off-shoring agreement were taken, this is the number of non-supervisory Indian staff needed. Initially, assume there is a 1-to-1 replacement of U.S. employees in 2020, that is 800 Indian employees (B25=800). Indias college graduates are expected to be more productive than U.S. employees, thus the number would increase only 1% per year (that is 1% more than previous year) due to expected banking business growth. Note that the number of employees must be an integer.
- Number of new U.S. employees (row 26): If the off-shoring agreement were not taken, this is the number of new U.S. employees. New U.S. employees are hired for two reasons: expanding business growth (see row 24) and replacing employees who left in prior year (use the U.S. employee turnover rate in row 10). Note that the number of employees must be an integer.
- Indian employee turnover rate (row 27): If the Indian labour market is expected to be favourable during the life of the 5-year contract, employee turnover rate will be 10% per year. If it is expected to be not favourable, employee turnover rate will be 25% per year.
- Number of new Indian employees (row 28): If the off-shoring agreement were taken, this is the number of new Indian employees. New Indian employees are hired for the same reasons as new U.S. employees see row 26, thus the logic of calculation is the same as for new U.S. employees, except that in 2021, all Indian employees are new employees.
- Average Indian employment cost per employee (row 29): In 2020, the average Indian employment cost per employee is US$16,000. If the Indian labour market is expected to be favourable during the life of the 5-year contract, salary levels will increase 8% per year (that is 8% more than previous year). If it is expected to be not favourable, the increase will be 15% per year (that is 15% more than previous year).
- Number of rupees per U.S. dollar (row 30): The agreed currency exchange rate is fixed at US$1 dollar to INR$45.85 rupees (cell B30) when the 5-year contract is made in 2020, but currency exchange rate fluctuates each day. If the exchange rate outlook is steady for that year, the number of rupees per U.S. dollar is the same as prior year. If the outlook is up, the number of rupees per U.S. dollar will be 2% more than prior year. If the outlook is down, the number of rupees per U.S. dollar will be 2% less than prior year.
- Indian employment cost in U.S. dollar (row 32): This is based on the number of Indian employees and the average Indian employment cost (in US$) per employee.
- Indian employment cost in rupees (row 33): This is the payment of Indian employment cost to BI contractor in rupees, using the agreed exchange rate of 45.85 rupees to US$1.
- Actual US$ needed for Indian employment cost (row 34): This is the amount of dollars actually required to pay BI contractor as the Indian employment cost for that financial year.
- Cost (in US$) of liaison employees living in the U.S. (row 35): This is based on the number of liaison employees living in the U.S. and the cost (in US$) of a liaison employee.
- Cost (in US$) of liaison employees living in India (row 37): This is based on the number of liaison employees living in India and the cost (in US$) of a liaison employee.
- Payment of Indian liaison employees in rupees (row 38): The liaison employees living in India will be paid by BS Bank in rupees, calculated at the agreed exchange rate of 45.85 rupees to US$1.
- Actual US$ needed for Indian liaison payments (row 39): This is the number of dollars actually required to pay for the liaison employees living in India for that financial year.
- Cost of background checks in India (row 41): This is the cost (in US$) of background security checks performed by BI for new Indian employees in a year.
- Payment of Indian background checks in rupees (row 42): This is the payment of Indian background checks to BI contractor in rupees, using the agreed exchange rate of 45.85 rupees to US$1.
- Actual US$ needed for Indian background checks (row 43): This is the number of dollars actually required to pay for the Indian background checks for that financial year.
- Cost of training new Indian employees in U.S. dollar (row 45): This is based on the number of new Indian employees and the training cost (in US$) per Indian employee.
- Payment of Indian training cost in rupees (row 46): This is the payment of Indian training cost to BI contractor in rupees, at the agreed exchange rate of 45.85 rupees to US$1.
- Actual US$ needed for Indian training cost (row 47): This is the number of dollars actually required to pay for the Indian training cost for that financial year.
- Cost of background checks in the U.S. (row 48): This is the cost (in US$) of background security checks performed for new U.S. employees in a year.
- U.S. telecommunication costs (row 49): This is based on the number of U.S. call centre employees and the cost of U.S. telecommunication per call centre employee.
- U.S. computer costs (row 50): This is based on the number of U.S. call centre employees and the cost of U.S. computer per call centre employee.
- U.S. real estate costs (row 51): This is based on the number of U.S. call centre employees and the cost of U.S. real estate per call centre employee.
- U.S. training costs (row 52): This is based on the number of new U.S. call centre employees and the cost to train a U.S. call centre employee.
- Number of U.S. supervisors (row 53): This is based on the number of U.S. call centre employees and the ratio of U.S. call centre employees to supervisor. Note that the number of supervisors must be an integer.
- Cost of U.S. supervisors (row 54): This is based on the number of U.S. supervisors and the average employment cost for a U.S. call centre supervisor.
- Cost of U.S. employees (row 55): This is based on the number of U.S. call centre employees and the average employment cost for a U.S. employee.
Net Present Value (NPV) calculation (rows 58 61): This is based on the net cash flows in the 5-year investments. The net present value of an investment is calculated by using a discount rate and a time series of payments /costs (negative values) and income/benefits (positive values). The net cash flow in a year is the difference between cash inflows (or investment benefits) and cash outflows (or costs). Formulae for rows 58 to 61 are given, their descriptions are given below;
- Cash inflows or benefits (row 58): These values are the total amounts that could be saved each year if the call centre is off-shored to India.
- Cash outflows or costs (row 59): These values are the total amounts that will be paid by BS Bank to BI contractor each year if the call centre is off-shored to India.
- Net cash flow (row 60): These values are the difference between cash inflows and cash outflows (that is, cash inflows less cash outflows) each year.
Net present value (cell B61): Use Microsoft Excels function - NPV(), to calculate the NPV at 25% discount rate (row 18) for the 5-year contract with BI if the call centre is off-shored to India.
PLS ANS C24 TO C55
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Personal Finance A Practical Approach
Authors: Jane King, Mary Carey
1st Edition
0199668833, 9780199668830
