Martin is working to develop a preliminary cost-benefit analysis for a new client server system. He has identified a number of cost factors and values for the new system, summarized in the following tables:

Development Cost - Personnel

2 - System Analyst 400 hours/ea @ $50/hour

4 - Programmer Analyst 250 hours/ea @ $35/hour

1 - GIU Designer 200 hours/ea @ $40/hour

1 - Telecommunications Specialist 50 hours/ea @ $50/hour

1 - System Architect 100 hours/ea @ $50/hour

1 - Database Specialist 15 hours/ea @ $45/hour

1 - System Librarian 250 hours/ea @ $15/hour

Development Costs - Training

4 - Oracle training registration $3500/student

Development Costs - New Hardware and Software

1 - Development Server $18,700

1 - Server Software (OS, misc.) $1500

1 - DBMS Server Software $7500

7 - DBMS Client Software $950/client

Annual Operating Costs - Personnel

2 - Programmer Analyst 125 hours/ea @ $35/hour

1 - System Librarian 20 hours/ea @ $15/hour

Annual Operating Costs - New Hardware, Software and Misc.

1 - Maintenance agreement $995

for server

1 - Maintenance agreement $525

for server DBMS software

Preprinted Forms 15,000/year @ $2.22/form

The benefits of the new system are expected to come from two sources: increased sales and lower inventory levels. Sales are expected to increase by $30,000 in the first year of the systems operation and will grow at a rate of 10% each year thereafter. Savings from lower inventory levels are expected to be $15,000 per year for each year of the projects life.

1. Develop a spreadsheet that summarizes this projects cash flow, assuming a four year useful life after the project is developed. Compute the present value of the cash flows, using an interest rate of 9%.

2. What is the NPV of this project?

3. What is the ROI of this project?

4. What is the break-even point?

5. Should this project be accepted by the approval committee?

6. Follow the given format.

2012 192010) 561,200 70,000 68,000 699,800 595,500 70,000 08,000 733,508 2,187,308 280,000 272,000 2,739,308 0 0 O 250,000 100,000 34,825 10,945 1,236,525 1,632,295 cccooo 0 0 0 0 Benefits Increased soles 500.000 530,000 Reduction in customer complaint calls. 70,000 70,000 Reduced inventory costs 68,000 68,000 Total Benefits 638,000 668,000 Development Costs 2 serveis @ $125,000 250,000 0 Printer 100,000 O Software licenses 34,825 0 Server soliware 10.045 0 Developmeni labor 1.236,525 Total Development Costs 1,632,295 0 Operational Costs Hardware 50,000 50,000 Software 20,000 20,000 Operational labor 115,000 119,000 Toral Operctional Costs 185,000 189,600 Total Costs 1,632,295 185,000 189,600 Total Benefits Total Costs 11,632,295) 453,000 478,400 Cumulative Net Cash Flow 11,632,295) 11,179,295) 1700,895) Return on Investment (ROI) 14.1% (338,670/2,400,638) Break-even Point (costs are fully recovered in year 4; (534,149 - 338,670)/534,149 = .37) 0 50,000 20,000 124,384 194,384 194,384 505,416 (195,4791 50.000 20.000 129,359 199,359 199,359 534,149 338,670 200.000 80,000 488.343 768,343 2,400,638 338,670 3.37 years 2012 192010) 561,200 70,000 68,000 699,800 595,500 70,000 08,000 733,508 2,187,308 280,000 272,000 2,739,308 0 0 O 250,000 100,000 34,825 10,945 1,236,525 1,632,295 cccooo 0 0 0 0 Benefits Increased soles 500.000 530,000 Reduction in customer complaint calls. 70,000 70,000 Reduced inventory costs 68,000 68,000 Total Benefits 638,000 668,000 Development Costs 2 serveis @ $125,000 250,000 0 Printer 100,000 O Software licenses 34,825 0 Server soliware 10.045 0 Developmeni labor 1.236,525 Total Development Costs 1,632,295 0 Operational Costs Hardware 50,000 50,000 Software 20,000 20,000 Operational labor 115,000 119,000 Toral Operctional Costs 185,000 189,600 Total Costs 1,632,295 185,000 189,600 Total Benefits Total Costs 11,632,295) 453,000 478,400 Cumulative Net Cash Flow 11,632,295) 11,179,295) 1700,895) Return on Investment (ROI) 14.1% (338,670/2,400,638) Break-even Point (costs are fully recovered in year 4; (534,149 - 338,670)/534,149 = .37) 0 50,000 20,000 124,384 194,384 194,384 505,416 (195,4791 50.000 20.000 129,359 199,359 199,359 534,149 338,670 200.000 80,000 488.343 768,343 2,400,638 338,670 3.37 years