You are considering the economic feasibility of information system to replace some manual forms processing performed by in-house staff. The system will have a life-cycle of 6 years.

Your analysis has determined that the project will cost $40,000 in up-front project team salaries during the year of implementation. In addition, the project will require $50,000 of servers and related equipment costs, as well as $65,000 in software licenses. In addition, the system will require about $50,000 in salaries to support the system (for a position called a Functional Administrator) in subsequent years. Assume that the $50,000 in salaries will receive a 3% annual COLA in years 2-6. In addition, the software licenses will incur recurring maintenance fees. Assume the maintenance fees will be 20% of the initial cost of the software licenses in Year 1, and then will see a 5% escalation annually in years 2-6.

Further analysis indicates that the system will save $100,000 in salaries annually (assume no savings during the implementation year -- Year 0). Also assume that those salaries would have also received 3% annual COLAs in years 2-6.

In your analysis, you should also consider the alternative of using cloud services rather than purchasing servers. For this cloud alternative, you will not have any expense for equipment (servers, etc.). However, you will have cloud hosting fees. The cloud fees will be $5000 for Year 0 (half a year), and $10,000 for Year 1. The cloud fees will escalate by 5% annually, years 2-6.

The cloud alternative, however, will not cost you as much to support. You will only need to pay the functional administrator $25,000 per year (year 1), with an annual 3% COLA in years 2-6.

1. Create a cost-benefit analysis spreadsheet and analyze the economic feasibility of both alternatives. Your organization requires the use of a 5% discount rate.

2. (1) Total NPV for the project, (2) Return on Investment (ROI), and (3) Break-Even Year.