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%

Required:

a.Disregarding the risk, calculate:

the payback period (rounded to 2 decimals)

NPV

IRR

accounting rate of return (annual)