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:
- Create
a cost-benefit analysis table (for 4 years) to assess the economic feasibility
of the proposed system.
- What
is the profitability index computed for this project?
- Do
you recommend that the organization fund this development project? Why and
why not?
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