Alternative C Economic Analysis Contains 1 Tangible Benefit

Alternative “C” Economic Analysis • Contains: 1. Tangible Benefits Worksheet 2. One Time Cost Worksheet 3. Recurring Cost Worksheet 4. Discount rates • Used to create Cost/Benefit Analysis Spreadsheets for possible alternative solutions. Cost/Benefit Analysis spreadsheet is located in doc sharing. • Description of Alternative C – Nova Corporation. (see page 151 in the book) 1. Industry Leader in CRM solutions 2. Large and complex 3. Pricing only based on modules purchased 4. License for the use of the system is middle of the row 1. Tangible Benefits Worksheet - Nova Nova - Alternative “C” Tangible Benefits Worksheet A. Cost reduction or avoidance $12,500 B. Error reduction $ 3,500 C. Increased Flexibility $ 5,500 D. Increased speed of activity $ 7,500 E. Improvement management/planning control $15,000 F. Ease of interfacing with business partners $16,000 Total Tangible Benefits $60,000 2. One Time Cost Worksheet – Nova Nova - Alternative “C” One Time Costs Worksheet A. Development Costs $ 2,000 B. New Hardware $ 1,000 C. Software License or Purchase cost $19,500 D. User Training $ 3,500 E. Site Preparation $ 4,000 Total One Time Costs $30,000 3. Recurring Cost Worksheet – Nova Nova – Alternative “ C” Recurring Cost Costs Worksheet A. Software Maintenance $ 2,500 B. Incremental Data Storage $ 2,500 C. Communications $ 9,000 D. Supplies $ 7,000 E. Other $ 4,000 Total Recurring Costs $25,000 4. Discount Rate = 12% Need to let Management Team know what: 1. What the Overall NPV is. 2. What the Return on Investment is. 3. What the Break Even Point is. Also discuss in the Baseline Project Plan Report

Solution

1. What the Overall NPV is. 2. What the Return on Investment is. 3. What the Break Even Point is. Also discuss in the Baseline Project Plan Report

What is Economic Analysis:-A systematic approach to determining the optimum use of scarce resources, involving comparison of two or more alternatives in achieving a specific objective under the given assumptions and constraints.

Economic analysis takes into account the opportunity costs of resources employed and attempts to measure in monetary terms the private and social costs and benefits of a project to the community or economy.

What is the Overall NPV? In finance, the net present value (NPV) or net present worth (NPW) is defined as the sum of the present values (PVs) of incoming and outgoing cash flows over a period of time. Incoming and outgoing cash flows can also be described as benefit and cost cash flows.

What is the Return on Investment? A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. ROI measures the amount of return on an investment relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment, and the result is expressed as a percentage or a ratio.

The return on investment formula:

ROI=(Gain from Investment-Cost of Investment) /Cost of Investment

3. What the Break Even Point is?

1. In general, the point at which gains equal losses.

2. In options, the market price that a stock must reach for option buyers to avoid a loss if they exercise. For a call, it is the strike price plus the premium paid. For a put, it is the strike price minus the premium paid