Question

A firm is considering developing a Customer Relationship Management (CRM) system in order to better learn their customer’s preferences, and simplifying the ordering process. The firm is considering outsourcing the development to a well-known vendor. The vendor estimates the development cost to be $1 Million, which will be due upfront. The firm expects to generate additional revenues from better targeting of customers to the tune of $250,000 every year for the next ten years. The ongoing licensing and maintenance costs for the initiative is expected to be $25,000 annually. Assuming that the investment will be made in Year 0, and the annual benefits and costs will be incurred at the end of each year,

What is the Payback Period (rounded in years) for the project using discounted cash flows? What is the Return on Investment (again using discounted cash flows) for the project? What would be the Payback Period and the Return on Investment if the additional revenues were $200,000 annually instead of $250,000?

Answer 1

question doesnot have regarding discount factor so i took assumption of 12% as normally takes all