Deliverable 4 - Evaluating Financing Strategies

EFS-Scenario1.xlsx

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Summary

			Cash Flow Comparisons*			Net Present Value Comparisons
	Cash Flow	Net Present Value	vs Opt 1	vs Opt 2	vs Opt 3	vs Opt 1	vs Opt 2	vs Opt 3
Option 1 - Develop Internal Software	$ (2,346,462)	$ (1,796,369)		$ 606	$ 636		$ (372,392)	$ (627,318)
Option 2 - Purchase Off the Shelf Software	$ (2,347,067)	$ (1,423,977)	$ (606)		$ 31	$ 372,392		$ (254,926)
Option 3 - Software as a Service (SaaS)	$ (2,347,098)	$ (1,169,051)	$ (636)	$ (31)		$ 627,318	$ 254,926
			*All absolute variances are less than 0.05% of base value

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Evaluating Financing Strategies

			Inflation years	1	2	3	4	5	6	7	8	9
Option 1 - Develop Internal Software		Description	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10	Company Factors (All Options)
Start-up delay	9 months	Start-up consultant costs	$ (1,663,200)										Discount rate	15%
Number of consultants	7	Depreciation adjustment for tax	$ 1,580,040	$ (332,640)	$ (332,640)	$ (332,640)	$ (332,640)	$ (249,480)					Income tax rate	25%
Consultant hours by month	1120	Maintenance consultant costs		$ (96,773)	$ (98,708)	$ (100,682)	$ (102,696)	$ (104,750)	$ (106,845)	$ (108,982)	$ (111,161)	$ (113,384)	Consultant wage rate	$ 150.00
Annual maint hours	575	Loss of margin on client projects	$ (332,640)	$ (19,355)	$ (19,742)	$ (20,136)	$ (20,539)	$ (20,950)	$ (21,369)	$ (21,796)	$ (22,232)	$ (22,677)	Consultant benefit %	10%
Deprecation life	5 years	Income tax	$ 103,950	$ 112,192	$ 112,772	$ 113,365	$ 113,969	$ 93,795	$ 32,053	$ 32,694	$ 33,348	$ 34,015	Consultant margin %	20%
		Net cash flow excl depreciation	$ (1,891,890)	$ (3,935)	$ (5,677)	$ (7,454)	$ (9,266)	$ (31,905)	$ (96,160)	$ (98,083)	$ (100,045)	$ (102,046)	Inflation rate on wages	2%
													Depreciation adjustments to income
		Net present value	$ (1,796,369)										tax are calculated on a straight-line
		Total cash flow	$ (2,346,462)										basis for this analysis
Option 2 - Purchase Off the Shelf Software		Description	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10
Purchase cost	$ 1,000,000	Purchase & upgrade costs	$ (1,000,000)		$ (500,000)		$ (500,000)		$ (500,000)		$ (500,000)
Start-up delay	1 month	Depreciation adjustment for tax	$ 500,000	$ (500,000)	$ 250,000	$ (250,000)	$ 250,000	$ (250,000)	$ 250,000	$ (250,000)	$ 250,000	$ (250,000)
Number of consultants	2	Consultant costs	$ (49,500)		$ (13,733)		$ (14,288)		$ (14,865)		$ (15,466)
Consultant hours month 1	300	Loss of margin on client projects	$ (9,900)		$ (2,747)		$ (2,858)		$ (2,973)		$ (3,093)
Bi-annual upgrade cost	$ 500,000	Income tax	$ 139,850	$ 125,000	$ 66,620	$ 62,500	$ 66,786	$ 62,500	$ 66,960	$ 62,500	$ 67,140	$ 62,500
Bi-annual maint hours	80	Net cash flow excl depreciation	$ (919,550)	$ 125,000	$ (449,860)	$ 62,500	$ (450,359)	$ 62,500	$ (450,879)	$ 62,500	$ (451,419)	$ 62,500
Deprecation life	2 years
		Net present value	$ (1,423,977)
		Total cash flow	$ (2,347,067)
Option 3 - Software as a Service (SaaS)		Description	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10
Start-up payment	$ 125,000	Start-up costs	$ (125,000)
Start-up delay	1 month	Monthly costs	$ (242,000)	$ (271,920)	$ (280,078)	$ (288,480)	$ (297,134)	$ (306,048)	$ (315,230)	$ (324,687)	$ (334,427)	$ (344,460)
Monthly payment	$ 22,000	Income tax	$ 91,750	$ 67,980	$ 70,019	$ 72,120	$ 74,284	$ 76,512	$ 78,807	$ 81,172	$ 83,607	$ 86,115
Annual inflation on costs	3%	Net cash flow	$ (275,250)	$ (203,940)	$ (210,058)	$ (216,360)	$ (222,851)	$ (229,536)	$ (236,422)	$ (243,515)	$ (250,820)	$ (258,345)
		Net present value	$ (1,169,051)
		Total cash flow	$ (2,347,098)

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