IS Project 44-638

Spring 2020

You are a Financial Analyst for KYC Company. Management is considering five different projects to help increase employee productivity at workplace. Management wants you to evaluate below projects. Note: Given our class time constraints, this assignment has been simplified by removing depreciation, net operating capital, and tax rates. The only cash flow you would have in the terminal cash flow is if there is a salvage value, and we assume that the salvage value and the book value match so calculating tax benefit or liability is not necessary.

Proposal 1: Purchase Uattend time clocks to help in tracking employees work time which results in cash flow of 145,000 for year 1. The approximate cost and installation for the system is $453,100. The cash flows will increase 1.27% for the next three years. We anticipate this system being used for four years. There is no salvage value for this system.

Proposal 2: Purchase Tech accessories for 300 employees. The approximate cost of each accessory is $1,000 and will be given one to each employee. Your company estimates cash flows of 82,000 for year 1 by using these accessories for product development. The cash flows will increase 2.9% for the next four years. We anticipate these accessories being used for five years with a total of $22,500 as a salvage value.

Proposal 3: Purchase a database server 35 work groups. Cost and installation is $5,250 each. Cash flows are expected to be $98,200 for year 1 and increase by 2.5% for the next five years. The salvage value at the end of year 6 is $42,000.

Proposal 4: Purchase of HP Portable monitors to increase employee productivity at a cost $120,000 with cash flows of $40,100 for year 1 and increase at 1.8% for the next three years. The salvage value of the equipment is anticipated to be $19,500 at the end of four years.

Proposal 5: Purchase new HP laptops for 300 employees at a cost of $1,500 each. The company estimates that increased employee productivity from using the laptops will account for cash flows of 250,000 in year 1 with an increase of 1.5% for the next two years. Salvage value at end of three years is $120,000.

You determine the initial outlay and cash flow for each year (including the final year cash flow where salvage value would be recovered). The WACC is 12%. Calculate the NPV for each project.

Design a matrix of possible combinations (see PowerPoint on course web site). Then remove any alternatives that do not satisfy the following requirements. The remaining alternatives will be used in Scenario Manager.

1. Proposals 2 and 5 are mutually exclusive
2. Proposals 1 and 3 are co-dependent
3. Proposal 4 is contingent on Proposal 5
4. The company wants to undertake at least two projects.

You will use 1s and 0s, sumproduct, and Scenario manager to present the NPV of these alternatives. Justify which alternative would you choose. Type your recommendation in a clearly marked place in your Excel file.