Question

Wen-Ching is working to develop a preliminary cost-benefit analysis for a website to support the leasing department at a major university. She developed the following estimates.
Development costs – Personnel
2 Systems Analysts       350 hours each at $80/hour
2 Agile Programmer/testers   350 hours each at $70/hour
1 Web designer           100 hours at $125/hour
1 Telecom specialist       20 hours at $150/hour
1 Database specialist       110 hours at $100/hour
Development costs – Training
2 interactive training seats    $3000/student
Development costs – Hardware and Software
1 Development Server       $2500
8 DBMS client licenses       $250/client
Annual operating costs – Personnel
1 Programmer/analyst       300 hours each at $65/hour
Annual operating costs – Hardware, software, misc.
1 maintenance agreement, server       $995
1 maintenance agreement, DBMS       $525
The benefits of the new system are expected to come from two sources: increased occupancy and ability to charge additional rent due to convenience. The benefit from occupancy is expected to total $30,000 in the first year of the system’s operation, and will grow at a rate of 10% per year. Rental increase is expected to realize $15,000 per year. Assume that personnel costs rise at 4%/year.
Following the model presented in the lecture, develop a spreadsheet that summarizes the project’s cash flow, assuming a four-year payback period after the project is developed.
Following the model presented in the lecture, compute the present value of the cash flows using an interest rate of 4%.
1.   What is the ROI?
2.   What is the break-even point?
3.   What is the NPV for this project?
4.   Should this project be approved?

Answer 1