Chapter 14 Running Case Assignment: Improving Decision Making: Using Spreadsheet Software to Analyze the Return on a New System Investment

Dirt Bikes's management would like to analyze the return on its investment in its employee training and skills tracking system described in Chapter 13. The system runs on the human resources specialists' PCs using PC database software. Because the entire corporate administrative staff recently received new desktop PC systems with database and other productivity software, there are no additional hardware and software purchase costs. The main costs include the initial cost of designing and implementing the database (business staff cost of $5,000; information systems staff cost of $15,000), gathering and adding employee skills and training data to the database ($5,500 initial data conversion cost plus $1,000 annual data entry costs), and ongoing maintenance and support ($3,000 annually). Human resources staff members believe the new application could save each of them two hours of work per week. (Their annual salaries are $37,000 and $42,000 each.) The company would also save about $11,000 annually in employee recruiting costs because it would be able to fill many vacant positions with existing employees, thereby reducing its costs for recruiting outside the company. The system would not be installed until the end of 2016 and would return benefits from 2017 to 2021.

• Prepare the report for management analyzing the return on the investment for this system over a five-year period using the following capital budgeting models: net present value, return on investment (ROI), internal rate of return (IRR), and payback method. Assume a 5 percent interest rate for your net present value calculations. Use spreadsheet software for your calculations.