Super Skateboard Builders (SSB), Inc. Background Super Skateboard Builders (SSB), Inc. was founded in 1997 by John "Z-boy" Boeve, the current president of the company, with the help of a small trust John received from his maternal grandmother, a woman who motivated John to go to college and to continue to pursue his skateboarding passion. She marveled at John's skateboarding finesse and encouraged him to find some way to earn a living by capitalizing on his passion for the sport. John used the money from the trust to buy the necessary shop and office equipment (storage bins, an assembly table, desks, etc.) and lease a small building that would adequately house a skateboard assembly operation. The Problem John recognized that the success of SSB would depend on the ability of his employees to work seamlessly together in an integrated fashion providing exceptional customer service. In the beginning when SSB was a small company with fewer than 10 employees, it was easy to provide outstanding customer service. However, as SSB grew during the next decade expanding its operations to 50 full-time employees and $5,000,000 in revenue, customer service declined, customer complaints increased, and cash flow suffered. Furthermore, the sales team was growing increasingly frustrated because they were promising products to customers they could not deliver. When John first started the company, he invested in some computer equipment and basic office software to help track important information. He was a strong believer in using the computer to store and track information related to any of life's worthwhile pursuits, especially if they were data-intensive. He purchased separate software applications to help keep track of data for each of the key functional areas in his organization - accounting, sales, and warehouse operations. While these software applications served each functional area well, they lacked integration and required significant manual intervention to perform routine business processes. For example, when the sales team submitted an order in its order tracking software application, the order had to be printed out and delivered to the warehouse and accounting departments for processing. The manual process was problematic and John felt it was one of the key reasons for the decline in customer service. Accordingly, he was considering buying an enterprise system like SAP to use throughout the organization. Your Task Before proceeding with the project, John has asked you to analyze the economic feasibility of replacing his existing suite of applications with SAP. John would like to know if the benefits realized from implementing the new system exceed the costs of buying, implementing and using the system. Therefore, you must carefully examine the cost and benefits of replacing the legacy system with SAP. To facilitate your analysis, you will create a Microsoft Excel workbook detailing the costs of purchasing, configuring, implementing, and supporting the system. The workbook should also contain a list of the projected benefits and cost savings associated with implementing the new system. Your analysis should take into account the time value of money and calculate the ROI given a 20 year life expectancy for the new system. The present value of a future cash flow may be calculated using the following formula: Present Value Factor = Where, r = discount rate t=time period in years I I Create a worksheet to calculate project NPVs for a range of interest rates and a range of annual benefits. Specifically, your sensitivity analysis should calculate NPV for interest rates between 0 and 20% in 1% increments and between annual benefits of $500,000 and $2,500,000. Year O costs and benefits remain the same. Auto format each cell so that each cell is green for positive NPV and red for negative. Hint: Use autofill and the NPV function built in Excel to help with your answer. See below for an example. Part 2 - Questions to Answer using the Excel Workbook Please answer the following questions using the workbook you created in Part 1. All questions should be answered in a separate Microsoft Word document. 1. Assume a discount rate of 15%. What is the overall net present value for the project? Should SSB move forward with the project and proceed with implementing SAP? Explain your answer. 2. Assume a discount rate of 30%. What is the overall net present value for the project? Should SSB move forward with the project and proceed with implementing SAP? Explain your answer. 3. Assume the recurring value of the benefits due to increased sales was overly optimistic and net income due to increased sales is only $500,000 instead of $1,000,000. Assuming a discount rate of 15%, what is the overall net present value for the project? Should SSB move forward with the project and proceed with implementing SAP? Explain your answer. ering sakit aparnya 4 Assume the recurring value of the benefits due to increased sales was overly optimistic and net income due to increased sales is only $500,000 instead of $1,000,000. At what discount rate is the project economically feasible? Include 6 decimal places of accuracy in your answer. Should SSB move forward with the project and proceed with implementing SAP? Super Skateboard Builders (SSB), Inc. Background Super Skateboard Builders (SSB), Inc. was founded in 1997 by John "Z-boy" Boeve, the current president of the company, with the help of a small trust John received from his maternal grandmother, a woman who motivated John to go to college and to continue to pursue his skateboarding passion. She marveled at John's skateboarding finesse and encouraged him to find some way to earn a living by capitalizing on his passion for the sport. John used the money from the trust to buy the necessary shop and office equipment (storage bins, an assembly table, desks, etc.) and lease a small building that would adequately house a skateboard assembly operation. The Problem John recognized that the success of SSB would depend on the ability of his employees to work seamlessly together in an integrated fashion providing exceptional customer service. In the beginning when SSB was a small company with fewer than 10 employees, it was easy to provide outstanding customer service. However, as SSB grew during the next decade expanding its operations to 50 full-time employees and $5,000,000 in revenue, customer service declined, customer complaints increased, and cash flow suffered. Furthermore, the sales team was growing increasingly frustrated because they were promising products to customers they could not deliver. When John first started the company, he invested in some computer equipment and basic office software to help track important information. He was a strong believer in using the computer to store and track information related to any of life's worthwhile pursuits, especially if they were data-intensive. He purchased separate software applications to help keep track of data for each of the key functional areas in his organization - accounting, sales, and warehouse operations. While these software applications served each functional area well, they lacked integration and required significant manual intervention to perform routine business processes. For example, when the sales team submitted an order in its order tracking software application, the order had to be printed out and delivered to the warehouse and accounting departments for processing. The manual process was problematic and John felt it was one of the key reasons for the decline in customer service. Accordingly, he was considering buying an enterprise system like SAP to use throughout the organization. Your Task Before proceeding with the project, John has asked you to analyze the economic feasibility of replacing his existing suite of applications with SAP. John would like to know if the benefits realized from implementing the new system exceed the costs of buying, implementing and using the system. Therefore, you must carefully examine the cost and benefits of replacing the legacy system with SAP. To facilitate your analysis, you will create a Microsoft Excel workbook detailing the costs of purchasing, configuring, implementing, and supporting the system. The workbook should also contain a list of the projected benefits and cost savings associated with implementing the new system. Your analysis should take into account the time value of money and calculate the ROI given a 20 year life expectancy for the new system. The present value of a future cash flow may be calculated using the following formula: Present Value Factor = Where, r = discount rate t=time period in years I I Create a worksheet to calculate project NPVs for a range of interest rates and a range of annual benefits. Specifically, your sensitivity analysis should calculate NPV for interest rates between 0 and 20% in 1% increments and between annual benefits of $500,000 and $2,500,000. Year O costs and benefits remain the same. Auto format each cell so that each cell is green for positive NPV and red for negative. Hint: Use autofill and the NPV function built in Excel to help with your answer. See below for an example. Part 2 - Questions to Answer using the Excel Workbook Please answer the following questions using the workbook you created in Part 1. All questions should be answered in a separate Microsoft Word document. 1. Assume a discount rate of 15%. What is the overall net present value for the project? Should SSB move forward with the project and proceed with implementing SAP? Explain your answer. 2. Assume a discount rate of 30%. What is the overall net present value for the project? Should SSB move forward with the project and proceed with implementing SAP? Explain your answer. 3. Assume the recurring value of the benefits due to increased sales was overly optimistic and net income due to increased sales is only $500,000 instead of $1,000,000. Assuming a discount rate of 15%, what is the overall net present value for the project? Should SSB move forward with the project and proceed with implementing SAP? Explain your answer. ering sakit aparnya 4 Assume the recurring value of the benefits due to increased sales was overly optimistic and net income due to increased sales is only $500,000 instead of $1,000,000. At what discount rate is the project economically feasible? Include 6 decimal places of accuracy in your answer. Should SSB move forward with the project and proceed with implementing SAP