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Overthetop Telecommunications is a large multinational telecommunications company with world-wide revenues of US$45 billion. Its Australian subsidiary (Overthetop Telecommunications (Australia) Pty Ltd) has a revenue

Overthetop Telecommunications is a large multinational telecommunications company with world-wide revenues of US$45 billion. Its Australian subsidiary (Overthetop Telecommunications (Australia) Pty Ltd) has a revenue of A$6 billion, of which A$1 billion is attributed to retail operations. Overthetop Telecommunications (Australia) has a sophisticated program management office that assesses project requests using a number of criteria and methodologies, including NPV, weighted scoring, ROI, payback and alignment with business objectives. Due to its size, Overthetops discount rate is 9%

Restringent Communications is a mobile virtual network operator (MVNO) that uses the Overthetop network. Restringent Communications prides itself on providing superior customer service to its predominantly rural customer base. Frill-less Communications annual revenue is A$12M (all of which is attributed to retail operations) and its operating profit is A$700k. Restringent is a private company with wealthy owners who are prepared to continue to invest in the company. Restringents discount rate is 11%.

VeryTech Pty Ltd markets a Customer Data Retention system that it designed to help companies comply with the Privacy Act 1998 (Cth) as amended from time to time. VeryTech has won numerous awards for its Customer Data Retention system, which is now regarded as the Gold Standard. The Customer Data Retention system is so good that it has been shown to increase revenue from retail operations by 1.8% per annum in the years following the year of implementation. Importantly, VeryTech will only supply its system to customers who also sign up to the maintenance agreement, as this is the way VeryTech ensures that its systems around the country are updated in live with the frequent changes to the Privacy Act.

Both Overthetop and Restringent have contacted VeryTech Pty to obtain a quotation for the installation and integration of the VeryTech Customer Data Retention system. VeryTech has responded to both organisations as follows:

Item

Overthetop Telecommunications

Restringent Coommunications

Licence cost:

$10,000,000

$100,000

Integration cost:

$20,000,000

$200,000

Project Management cost:

$20,000,000.

$250,000

Annual maintenance cost:

10% of software licence cost.

10% of software licence cost.

Both Overthetop and Restringent use a 5-year time horizon for their financial analyses (i.e., years 0 through 5 inclusive). No additional revenue is expected in year 0.

Answer the following questions:

(a) As the CIO of Overthetop do you proceed with the project? State the reasons for your decision. (2 marks)

(b) As the CIO of Restringent do you proceed with the project? State the reasons for your decision. (2 marks)

In the wake of recent events, the Federal Government decides to increase the fines associated with failing to protect customer personal information to a maximum of 4% total global revenue.

Answer the following questions:

(a) Does this change your decision as the CIO of Overthetop to proceed with the project? Why or why not? (1.5 marks)

(b) Does this change your decision as the CIO of Restringent to proceed with the project? Why or why not? (1.5 marks)

(c) How would you categorise this project given the governments intentions? Provide your reasons. (0.5 marks)

You must upload the analysis you performed to justify your decisions for parts (a) and (b).

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