Create Ms Excel using the data given.

Decision making based on NPV, ROI, and Break-even Analysis Problem # 4 on page 34 of your textbook. This analysis is being done to help Martin decide on moving ahead with a new client-server system. Assumptions: Benefits:

• Sales increase at 10% after the first year • Reduced inventory costs stay the same

Costs:

• Programmer analyst salary increases modestly as shown • System librarian salary increases modestly as shown • Present value based on an interest rate of 9% (refer to page 3 for present value table)

Analysis: As the numbers indicate, this would not be an economically feasible project for several reasons.

• It would take more than the projected 4- year life span to breakeven on the initial investment

• The return on investment is a very low number (-1), and • The net present value is currently projected as a number less than zero.

Decision: Martin should not allocate resources for this project.

Client Server System

2021 2022 2023 2024 Total

Benefits

Increased Sales 30,000 33,000 36,300 39,930

Reduced Inventory 15,000 15,000 15,000 15,000

Total Benefits 45,000 48,000 51,300 54,930 199,230

Present Value Total Benefits 41,284 40,401 39,613 38,914 160,212

Development Costs

Systems Analysts 40,000

Programmer Analysts 35,000

GUI Designer 8,000

Telecommunications Specialist 2,500

System Architect 5,000

Database Specialist 675

System Librarian 3,750

Development Training 14,000

Hardware 18,700

Software 15,650

Total Development Costs 143,275

Operational Costs

Labor: Programmer Analysts 8,750 9,100 9,643 9,843

Labor: System Librarian 300 312 325 337

Hardware Maintenance 995 995 995 995

Software Maintenance 525 525 525 525

Preprinted Forms 3,300 3,300 3,300 3,300

Total Operational Costs 13,870 14,232 14,788 15,000 57,890

Total Costs 143,275 13,870 14,232 14,788 15,000 201,165

Total Benefits – Total Costs (143,275) 31,130 33,768 36,512 39,930 (1,935)

Cumulative Cash Flow (143,275) (112,145) (78,377) (41,865) (1,935)

Present Value Total Costs 143,275 12,725 11,979 11,419 10,626 190,024 NPV (PV Total Benefits – PV Total Costs (29,812)

ROI -1% (-1,935/201,165) Breakeven Point = not realized within this schedule