Assignment 4b CBA

Assignment 4b on ECONOMIC FEASIBILITY

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

                                                                                                           

Development Costs

Hardware                    RM 350,000

Software                     RM 70,000

Training                       RM   15,000

Annual Production Costs

Supplies                       RM   4,500

IS personnel                RM 56,000 in year 1;    8% annual increase

Maintenance                RM   15,000 per year

Expected Annual Benefits

Labor savings              RM 45,000 in year 1;   5% increase annually

Increase sales              RM 80,000 in year 1;   10% increase annually

Assumptions:

Discount rate                           12 %

Sensitivity factor (costs)         0.10

Sensitivity factor (benefits)    0.6

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?