SlowRider Incorporated had a rudimentary business intelligence $($BI$)$ system. Analysts at SlowRider Incorporated pulled data from three different ERP systems, loaded the data into Excel spreadsheets, and emailed those spreadsheets to the senior managers each month. However, some managers complained that they didn$$t understand how to get the information they needed, others complained that the data were not accurate, and still others ignored the spreadsheets. SlowRider established a project team to look at acquiring a state$-$of$-$the$-$art business intelligence system. After several interviews with all the managers, the project team was ready to develop the business case.

The project team estimated benefits of the new BI system as follows:

$5$ percent increase in sales through better$-$focused sales campaigns, which should increase gross margins by $$200,000$ in year $1$ and $$300,000$ in years $2$ and $3.$

$10$ percent increase in inventory turnover through better purchasing, which should reduce inventory carrying costs by $$100,000$ in year $1$ and $$150,000$ in years $2$ and $3.$

The project team estimated costs over an expected $3-$year life as follows:

Cost Element Year $0$ Year $1$ Year $2$ Year $3$

Acquisition cost $($new software and implementation$)$ $ $400,000$

Operating cost $($annual licenses, upgrades, support$)$ $ $50,000$ $ $50,000$ $ $50,000$

Training $ $10,000$ $ $5,000$ $ $5,000$ $ $5,000$

Lost productivity during implementation $ $20,000$

Total $ $430,000$ $ $55,000$ $ $55,000$ $ $55,000$

After interviewing managers at other firms that have already implemented similar BI systems, the project team then estimated that the initiative would have the following risks.

Risk Description Probability Mitigation Steps

Managers will not use the system, resulting in: Top management support; incentives to use the system

Revenue growth of $3\%25\%$

Inventory turnover increase of $5\%25\%$

PR $17-1$ Part a: Disregarding the risk, calculate the payback period, NPV$,$ IRR, and accounting rate of return $($annual$).$