Assignment 4a CBA

Assignment 4a:  USE YOUR KNOWLEDGE TO COMPUTE THE ECONOMIC FEASIBILITY OF THE CASE BELOW

1.         Consider the information given below AND ANSWER the questions following it:

                                                                                                           

Development Costs

Hardware                    RM 20,000

Software                     RM 10,000

Training                       RM   8,000

Annual Production Cost

Supplies                       RM   1,500

IS personnel                RM 30,000 in year 1;    10% annual increase

Maintenance                RM   3,000 per year

 

Expected Annual Benefits

Labor savings              RM 20,000 in year 1;   5% increase annually

Increase sales              RM 25,000 in year 1;   10% increase annually

Assumptions:

Discount rate                           15 %

Sensitivity factor (cost)           0.5

Sensitivity factor (benefit)      0.9

Questions:

1. Create a cost-benefit analysis table (for 4 years) to assess the economic feasibility of the proposed system.

2. What is the profitability index computed for this project?

3. Do you recommend that the organization fund this development project? Why and why not?