ECONOMIC ANALYSIS TEMPLATE
Discount Rate
0.09
Red
Blue
Green
discount rate
Input costs and benefits
Outputs
0
1
YEAR
Discount Factor
1
0.917431193
2
0.841679993
3
0.77218348
4
0.708425211
TOTAL
Benefits
Increased Revenue
Cost Reduction
Total Benefits
Present Value Total Benefits
$
$
$
$
–
$
$
$
$
30,000.00
30,000.00
27,522.94
$
$
$
$
30,000.00
30,000.00
25,250.40
$
$
$
$
30,000.00
30,000.00
23,165.50
$
$
$
$
30,000.00
30,000.00
21,252.76
$
$
$
$
120,000.00
120,000.00
97,191.60
Development Costs (Personnel)
1 Systems Analysts
Programmer Analysts (2)
Web App Specialist
Database Specialist
Total Development Costs (Personnel)
$
$
$
$
$
11,000.00
10,500.00
6,700.00
1,350.00
29,550.00
$
$
$
$
$
–
$
$
$
$
$
–
$
$
$
$
$
–
$
$
$
$
$
–
$
$
$
$
$
11,000.00
10,500.00
6,700.00
1,350.00
29,550.00
$
$
7,000.00
7,000.00
$
$
–
$
$
–
$
$
–
$
$
–
$
$
7,000.00
7,000.00
Server Software
Web App Software
Software Licenses
Total Development (Hardware/Software) Costs
$
$
$
$
2,500.00
1,800.00
3,550.00
7,850.00
$
$
$
$
–
$
$
$
$
–
$
$
$
$
–
$
$
$
$
–
$
$
$
$
2,500.00
1,800.00
3,550.00
7,850.00
Total Development Costs
$
44,400.00
$
–
$
–
$
–
$
–
$
44,400.00
Development Costs (Training)
New System Training
Total Training Costs
Development Costs (Hardware/Software)
Annual Operating Costs (Personnel)
Programmer Analysts (2)
System Librarian
Total Operating Costs (Personnel)
$
$
$
–
$
$
$
8,750.00
300.00
9,050.00
$
$
$
8,750.00
300.00
9,050.00
$
$
$
8,750.00
300.00
9,050.00
$
$
$
8,750.00
300.00
9,050.00
$
$
$
35,000.00
1,200.00
36,200.00
Maintenance Agreement for Server
Maintenance Agreement for Web App Software
Total Operating Costs (Hardware/Software)
$
$
$
–
$
$
$
995.00
525.00
1,520.00
$
$
$
995.00
525.00
1,520.00
$
$
$
995.00
525.00
1,520.00
$
$
$
995.00
525.00
1,520.00
$
$
$
3,980.00
2,100.00
6,080.00
Total Operating Costs
$
–
$
10,570.00
$
10,570.00
$
10,570.00
$
10,570.00
$
42,280.00
TOTAL COSTS
TOTAL BENEFITS
Net Cash Flow
Cumulative Net Cash Flow
Return on Investment (ROI)
Payback Period (Break-Even Point)
Present Value Total Benefits
Present Value Total Costs
$
$
$
$
$
$
$
$
10,570.00
30,000.00
19,430.00
(24,970.00)
$
$
$
$
10,570.00
30,000.00
19,430.00
(5,540.00)
$
$
$
$
10,570.00
30,000.00
19,430.00
13,890.00
$
$
$
$
10,570.00
30,000.00
19,430.00
33,320.00
$
$
$
86,680.00
120,000.00
33,320.00
$
$
27,522.94
9,697.25
$
$
25,250.40
8,896.56
$
$
23,165.50
8,161.98
$
$
21,252.76
7,488.05
$
$
97,191.60
78,643.84
This project should be
approved
$
18,547.76
Annual Operating Costs (Hardware/Software)
$
$
$
44,400.00
(44,400.00)
(44,400.00)
38.4402%
2.29
44,400.00
Net Present Value (PV Total Benefits – PV Total Costs)
HW1
Minicase 4 in Ch 1:
Use the Economic analysis_template.xls:
Martin is working to develop a preliminary cost¥nefit analysis for a new client?server system. He has
identified several cost factors and values for the new system, summarized in the following tables:
Development Costs%rsonnel
2 Systems Analysts 400 hours/ea @ $50/hour
4 Programmer Analysts 250 hours/ea @ $35/hour
1 GUI Designer 200 hours/ea @ $40/hour
1 Telecommunications Specialist 50 hours/ea @ $50/hour
1 System Architect 100 hours/ea @ $50/hour
1 Database Specialist 15 hours/ea @ $45/hour
1 System Librarian 250 hours/ea @ $15/hour
Development Costs2aining
4 Oracle training registration $3,500/student
Development Costs¥w Hardware and Software
1 Development server $18,700
1 Server software (OS, misc.) $1,500
1 DBMS server software $7,500
7 DBMS client software $950/client
Annual Operating Costs%rsonnel
2 Programmer Analysts 125 hours/ea @ $35/hour
1 System Librarian 20 hours/ea @ $15/hour
Annual Operating Costs!rdware, Software, and Misc.
1 Maintenance agreement for server $995
1 Maintenance agreement for server $525
DBMS software
Preprinted forms 15,000/year @ $.22/form
The benefits of the new system are expected to come from two sources: increased sales and lower
inventory levels. Sales are expected to increase by $30,000 in the first year of the system’s operation
and will grow at a rate of 10% each year thereafter. Savings from lower inventory levels are expected to
be $15,000 per year for each year of the project’s life.
Using a format like the spreadsheets in this chapter, develop a spreadsheet that summarizes this
project’s cash flow, assuming a 4?year useful life after the project is developed. Compute the present
value of the cash flows, using an interest rate of 9%.
What is the NPV for this project? What is the ROI for this project? What is the break?even point? Should
this project be accepted by the approval committee?

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