Question

In: Operations Management

3. Suppose EMU Software is promoting its new tax preparation software. Its main competing product is...

3. Suppose EMU Software is promoting its new tax preparation software. Its main competing

product is Turbotax’s software worth $50. EMU claims that for 30% of the time, its software

identifies additional savings of $110 for their customers compared to its closest competitor.

Also, EMU’s software is easier to use and it takes only 3 hours for its customer to use to

complete all its tax preparations. Turbotax’s software on the other hand takes 4 hours to do

the same. However, EMU Software is a new product and 5% of their customers may

experience a bug in the software. The delay in sorting that bug out will lead to an extra day

required for tax preparation using EMU Software for those customers. Assume that a typical

company accountant who would be hired to use the software earns $40 per hour. Calculate

the total economic value of EMU’s software. Note that one day is 8 working hours. (10

points)

Solutions

Expert Solution

Worth of Turbotax software = $ 50

Expected Value of additional savings identified by EMU = 110*30% = $ 33

Time taken by EMU software to complete tax preparations = 3 hours

Time taken by Turbotax software to complete tax preparations = 4 hours

Time saved by using EMU software over Turbotax software = 4 - 3 = 1 hour

Probability of bug in EMU software = 5%

Time taken in sorting the bug out using EMU software = 1 day

Cost of an accountant using software = $ 40 per hour

Working hours per day = 8 hours

Worth of time saved by EMU software = 1 hour * $ 40 = $ 40

Expected cost incurred due to bug in EMU software = 5%*1*8*40 = $ 16

Total economic value of EMU's software = Expected value of additional savings identified + Worth of time saved - Expected cost incurred due to bugs

= 33 + 40 - 16

= $ 57

[Comment: Economic value of Turbotax software is $ 50. So, economic value of EMU software is greater than that of Turbotax software]

keosha answered 1 month ago
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