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%.

If writing out answers by hand please write in print and clearly.

1. Based on the information provided, calculate a NPV of this project using 6% cost of capital.

2. Calculate a Return on Investment (ROI).

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 Sales Direct Labor Productivity 6 Fewer Employees Needed Purchasing costs Inventory Item Raw Material and WIP Finished Goods Premium freight ESTIMATED BENEFITS Current Level % Improvement Annual Benefits $250,000,000 5% $3,750,000 $15,000,000 10% $1,500,000 Average loaded $50,000 annual $300,000 salary $1,000,000 20% $200,000 Current Levels % Improvement Annual Benefits $17,000,000 4% $680,000 $9,000,000 17% $1,530,000 $800,000 50% $400,000 Comments Improvement in gross sales due to improved product availability and better service. Reductions in idle time, overtime, and other HR- related issues related to inefficiency of workforce. Reductions in clerical/data entry support and warehouse staff Better planning and information = reduced total purchase costs. Comments Annual saving from better forecasting and also implementation of vendor managed inventory Annual saving from better forecasting and also implementation of demand management module Produce and ship on-time reduces shipment cost