Question

Business Case Sample Exercise 4 years by developing a new information system. The new information system will connect all its branch offices across the country and linked to a common server. In measuring the economic worth of this project, the preliminary estimated costs for the new venture by ABC Enterprise covers personnel, training, infrastructure and maintenance. - The personnel that will form the project team includes; three (3) systems analysts who will be required to work for 400 hours at a cost of $50 per hour, five (5) programmers working for a total of 250 hours at a cost of $60 per hour. A graphic user interface designer working for 150 hours at a cost of $45 per hour. A telecommunication specialist required to work for 50 hours at a cost of $55 per hour. A system architect working for 100 hours in the project at a cost of S 45 per hour. A database specialist will be hired to work on part time for a total period of 20 hours at $40 per hour. A system Liberian working for 200 hours at a cost of $20 per hour. As part of the efforts to provide support to the system and end users, five (5) employees of ABC Enterprise working at the Information Systems Department will be given training on oracle at a cost of $4,500 per student manoma The initial cost estimates for infrastructure (new hardware and software) required to support the development of the system are one (1) development server at a unit cost of $ 20,700, one (1) server software (operating system and miscellaneous) at a unit cost of $2.000, one ci) database management system server software at a unit cost of $ 8,500 and seven (7) database client software at a unit cost of $750. The annual operating cost projected for 4 years period covers personnel and maintenance. On personnel, three (3) programme analysts will be employed for 130 hours at $40 per hour and a system Liberian for 25 hours at $16 per hour. The maintenance includes one (1) server at a cost of $1,000, one (1) database management system (DBMS) at a cost of $530 and 0.22 pre-printed forms at a cost of $15.000. For the 4 years period, sales are projected as follows: First Year $ 65,000, second year $70,000. estimated at $ 33,000 Using a discount rate of 8%, calculate the following: a. The project payback period. b. The Net Present Value (NPV) of the project. Return on Investment (ROI). Comment on your answers

Answer 1

a.)Project Pay back Period = Initial fixed Investment in the project / Estimated cash inflows from the project

Initial fixed Investment in the project= $(65000+70000+77000+85000)

=$297000

Estimated cash inflows from the project=$33000

Project Pay back Period=$297/000 /$33000 =9 years

(b) Net Project Value(NPV) of the Project= Summation Ct /(1+r)t  - Initial Investment

Ct = cash flow at the end of each year ,t =4 years

Initial Investment =cost incurred on (personnel +training+infrastructure+maintenance)

cost on operations= 16000 +4830 = 20830

cost on infrastructure=36450

cost on personn