Middle East Technical University (METU) is currently using a Voice over IP (VoIP) phone system that was installed in 2007. The system is owned by Aftermath and is jointly managed by the METU telecommunications staff and Aftermath. The university staff is responsible for the day-to-day management, while Aftermath is responsible for the hardware and software maintenance, and licensing. Early cost models suggest that the university could save at least $56,000 annually and increase service by implementing and managing its own telecommunications infrastructure such as the Unified Communications System.

The main component of the existing VoIP system is shown in Figure 1.

Figure 1: Main component of the existing VoIP System

While the current VoIP implementation system serves well, the university seeks an advanced VoIP system, so-called the Unified Communications System. A market search on the new system reveals that the main services offered by the new system are: e-mail services, security systems, emergency communications systems. The Unified Communications System also provides mobility solutions using single-number reach and softphones installed on mobile devices and laptop computers, video, collaboration and conferencing tools, and instant messaging. Those features increase the attractiveness of the system for every increasing number of mobile professionals.

All relevant financial data for the existing and proposed VoIP systems are described in Table 1 and Table 2.

Table 1: Expenditure Data for the Existing VoIP System

Financial Data for the Existing VoIP System
	Quantity	VoIP Rate	VoIP Monthly	Annual
Standart Phone	120.00	20.45	2454.00	29448.00
Soft Phone Only	0.00	16.75
Advanced Phone	100.00	15.75	1575.00	18900.00
Staff (Salaries)				84900.00
VoIP Monthly Est.			20475.00
VoIP Annual (including staff)				214600.00
Contract renewal per 10 years				110000.00
Expected life time: 25 Years

Table 2: Expenditure Data for the Proposed System, Unified Communications System

Financial Data for the Proposed Unified Communications System
	Life(in years)	Quantity	Unit Cost (in Turkish Lira (TL))	Total
Hardware	8	5	35514.00	177570.00	At the beginning of each life cycle
Support and Maintenance	8	1	78100.00	781.00	Annual payment starting year 0
Conference Phone	10	20	8880.00	177600.00	At the beginning of each life cycle
License	10	20	2075.00	41500.00	At the beginning of each life cycle
Support and Maintenance	10	20	8.40	168.00	Annual payment starting year 2
Standard Phone	5	400	250.00	100000.00	At the beginning of each life cycle
License	5	400	130.75	52300.00	At the beginning of each life cycle
Support and Maintenance	5	400	9.15	3660.00	Annual payment starting year 1
Soft Phone Only	10	10	173.73	1737.30	At the beginning of each life cycle
License	10	10	43.92	439.20	At the beginning of each life cycle
Support and Maintenance	10	10	20.45	204.50	Once in 2 years, starting year 0
Professional Service (Installation)	One time	1	92850.00	92850.00	At the beginning
Staff (Salaries)	Annual		105850.00	105850.00	Starting year 1

After the proper engineering economic analysis of the existing and proposed systems, another alternative has investigated. The Cloud-Integrated Communications System makes use of the cloud technology and provides larger amount of data storage area. The relevant financial data for the IC communications system are given in Table 3.

Table 3: Expenditure Data for the new alternative Cloud Integrated Communications System

Financial Data for the New alternative -- Cloud-Integrated Communications Syste
	Life(in years)	Quantity	Unit Cost (in Turkish Lira (TL))	Total
Hardware	4	6	42000.00	252000.00	At the beginning of each life cycle
Support and Maintenance	4	2	147.00	294.00	Annual payment starting year 0
Conference Phone	10	20	7140.00	142800.00	At the beginning of each life cycle
License	10	20	25417.00	508340.00	At the beginning of each life cycle
Support and Maintenance	10	20	9.00	180.00	Annual payment starting year 2
Standard Phone	7	250	255.00	63750.00	At the beginning of each life cycle
License	7	250	128.00	32000.00	At the beginning of each life cycle
Support and Maintenance	7	250	17.87	4467.50	Annual payment starting year 1
Soft Phone Only	10	8	147.00	1176.00	At the beginning of each life cycle
License	10	8	347.00	2776.00	At the beginning of each life cycle
Support and Maintenance	10	8	4.45	35.60	Once in 2 years, starting year 0
Professional Service (Installation)	One time	1	47850.00	47850.00	At the beginning
Staff (Salaries)	Annual		83850.00	83850.00	Starting year 1

After the proper engineering economic analysis of the existing and proposed systems, another alternative has investigated. The Cloud-Integrated Communications System makes use of the cloud technology and provides larger amount of data storage area. The relevant financial data for the IC communications system are given in Table 3.

Table 3: Expenditure Data for the new alternative Cloud Integrated Communications System

As a new alternative for the METU is introduced, a new engineering economy analysis between the previously selected and the Cloud-Integrated Communications System should be conducted. Considering the ever increasing advances in electronics technology, the university administration plans to change its communications system together with its components after 9 years of use. The estimated salvage values at the end of year 9, are 3,750,000, 5,450,000 and 7,000,000, for the existing, Unified Communications and Cloud-Integrated Systems respectively.

Questions and Discussions

METU uses 2% real interest rate per year. Since inflation estimates differ for each year, the university wants to use adjusted rates for the next ten years. The estimate of the tenth year will be used for all times. Unsurprisingly, the junior engineering economy (IE 347) class is well known by the METU, so, administrators ask for your help for the inflation estimates and market interest rates. Perform a small research on the long-term yearly inflation rate estimates for Turkey and discuss. Report the estimates you selected along with proper references and citations.

Compare the existing VoIP system with the proposed Unified Communications System by Annual Worth or Present Worth Analysis. For the existing system, use the market rate(s) you have found in the 1st question and, use the market rate of 1.0087% per month compounded monthly for the proposed system. Please, clearly show the steps of your analysis and indicate which alternative is better.

Compare the new alternative (Cloud-Integrated Communications System) with the previously selected one (in the 2nd question) under the new conditions (including salvage values and for nine years). Before conducting an analysis, define the type of investments for the two alternatives and find corresponding rates (Rate of Return or Internal Rate of Return) accordingly. After deciding the promise of the alternatives, conduct an Incremental Rate of Return Analysis to find the best alternative.

How sensitive are your findings against different realizations of the yearly inflation rate and real interest rate? For fixed real rate of return, compare the alternatives under 1% higher and 1% lower inflation rate cases. Select the best plan in each case and discuss. For fixed inflation rate, compare the alternatives under 1% higher and 1% lower real interest rate cases. Select the best plan in each case and discuss.

Remarks

State your assumptions clearly.

Present all your work in an appropriately organized report.

Use Excel as much as possible. If necessary, make your calculations in separate sheets of an Excel file.

Submit your Excel file along with your report. The quality of your Excel file will be a part of grading. To get a credit, your file should be neat, easily understandable and flexible such that the results of varying parameters can be obtained easily