Understand ROI concepts in relationship to making IT investments

Apply ROI concepts for an IT implementation

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Submit as an MS Excel sheet.

A new inventory management software for Crash Dummies Inc could be purchased at a cost of $358,000. After the initial purchase the estimated cost of buy servers to support and operating costs and estimated net benefits over six years of operation are below. The estimated benefits of the new system over the next six years are also listed below.

Year	Estimated Net Operating Cost	Cumulative Costs	Estimated Net Benefits	Cumulative Benefits
0	$358,000		$ -	$ -
1	$ 150,000		$ 135,000
2	$ 100,000		$ 225,000
3	$ 100,000		$ 347,000
4	$ 25,000		$ 1,100,000
5	$ 25,000		$ 2,300,000
6	$ 20,000		$ 3,800,000

1. What would the payback period be for this investment?

2. What would the ROI percentage be for this investment at the payback period year and at the end of six years?

3. Assuming the company has a standard policy that all projects have an internal rate of return of less than 3 years. Critically thinking, would this be considered a good or bad investment, why?