Roby and Bovi own a restaurant in a prime camping location for tourists and many travel attractions Because of their location, they have witnessed increased competition from the large chain stores and continental restaurants trying to take advantage of the market and opportunities The location also houses an expanding educational institution and a couple of medium sized manufacturing enterprises are also located in the town After meeting with the consultant, Mr Oliver, the requirements and scope for the project has been clearly defined Bovi and Roby are now convinced of the need for a restaurant order system that will be accessible Mr Oliver has given them two options They can hire some expert programmers and then manage the support themselves, or alternatively they can contract a consulting firm to develop the system on their behalf After Mr Oliver conducted detailed market research, he projects that the implementation of the system can provide the following profit income growth PERIOD BUILD OUTSOURCE First Year R R 15 000,00 Second Year R 50 000,00 R 50 000,00 Third Year R 60 000,00 R 60 000,00 Fourth Year R 70 000,00 R 70 000,00 Fifth Year R 80 000,00 R 80 000,00 Mr Oliver also approached 2 consultants and obtained fixed pricing for the implementation of the two options The costs are PERIOD BUILD OUTSOURCE First Year R 100 000 R 50 000,00 Second Year R 25 000 R 50 000,00 Third Year R 20 000 R 20 000,00 Fourth Year R 20 000 R 15 000,00 Fifth Year R 10 000 R 15 000,00 All parties agree that the choice of the approach to be taken will be based on the outcome of the NPV calculation The internal rate of return is 8 3 1 Required For the first stage of decision making, a decision must be made on whether to build or buy the software Complete the present value (PV) calculations for each period using a table (16 marks) 3 2 Required From the calculations done in 3 1 above, calculate the Net Present Values Why do you think that the NPV analysis is a useful tool to determine project viability (8 marks)

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Roby and Bovi own a restaurant in a prime camping location for tourists and many travel attractions. Because of their location, they have witnessed increased

Roby and Bovi own a restaurant in a prime camping location for tourists and many travel attractions. Because of their location, they have witnessed increased competition from the large chain stores and continental restaurants trying to take advantage of the market and opportunities. The location also houses an expanding educational institution and a couple of medium-sized manufacturing enterprises are also located in the town.

After meeting with the consultant, Mr Oliver, the requirements and scope for the project has been clearly defined. Bovi and Roby are now convinced of the need for a restaurant order system that will be accessible.

Mr Oliver has given them two options. They can hire some expert programmers and then manage the support themselves, or alternatively. they can contract a consulting firm to develop the system on their behalf.

After Mr Oliver conducted detailed market research, he projects that the implementation of the system can provide the following profit/income growth:

PERIOD	BUILD	OUTSOURCE
First Year	R -	R 15 000,00
Second Year	R 50 000,00	R 50 000,00
Third Year	R 60 000,00	R 60 000,00
Fourth Year	R 70 000,00	R 70 000,00
Fifth Year	R 80 000,00	R 80 000,00

Mr Oliver also approached 2 consultants and obtained fixed pricing for the implementation of the two options. The costs are:

PERIOD	BUILD	OUTSOURCE
First Year	R 100 000	R 50 000,00
Second Year	R 25 000	R 50 000,00
Third Year	R 20 000	R 20 000,00
Fourth Year	R 20 000	R 15 000,00
Fifth Year	R 10 000	R 15 000,00

All parties agree that the choice of the approach to be taken will be based on the outcome of the NPV calculation. The internal rate of return is 8%.

3.1 Required: For the first stage of decision-making, a decision must be made on whether to build or buy the software. Complete the present value (PV) calculations for each period using a table. (16 marks)

3.2 Required: From the calculations done in 3.1 above, calculate the Net Present Values. Why do you think that the NPV analysis is a useful tool to determine project viability? (8 marks)