Question

The customer and the oversight committee of the project indicated that the technology investment cost of the project is $25,000.00. They foresaw a consistent recurring cost of $7,500 in using the technology with an expected discount rate of 11% within a 5-year period. They also worked out their forecasted benefits as $30,000.00, $35,000.00, $40,000, $45,000.00 and $50,000.00 in the 5-year period.

Conduct a 5-year cost/benefit analysis by completing all the following items:

1. Create an Excel spreadsheet in common format.
2. Explain the breakeven period for the project, including
a. What breakeven period means,
b. What different types values are obtained for this project, and
c. What these values mean to the customer (Explain what breakeven period is and how
your answer is doing what it does for the customer).

3. Explain the return on investment for the project, including
a. What return on investment means,
b. What its value is for this project and how the value means to the customer, and
c. Whether the project is a worthwhile investment and the project should be continued
or not

Answer 1

.

1)Breakeven point is the measurement system that calculate the margin of safety by comparing the amount of revenues or unit must be sold to cover fixed and veriable cost associate with making the sale.
2)25000=
Total out flow=$25000
Total infow after considering recurring cost every year 7500 and discounted at 11%
{(30000-7500)*0.9009+(35000-7500)*0.811622+(40000-7500)*0.73119+(45000-7500)*0.658730+(50000-7500)*0.59345}=116277.53	Year 1	Year 2	Year 3	Year 4	Year 5
Break even period=1.21 year	20270.25	22319.61	23763.68	24702.38	25221.63
a)brek even period means by when company can cover its fixed cost and initial investment.
3)Return on investment is a measure of monetary benefit obtained by an organition over a specified time period in return for a given investment.