Costs and benefits required for implementing Inventory Tracking System at American Labs: The costs for implementing Inventory Tracking System at American Labs include: One-time costs It is the cost associated with starting phases of a project during project initiation and planning. Recurring costs It is the cost that results from present evolution and use of the proposed system. The benefits for implementing Inventory Tracking System at American Labs: Tangible benefits These are the benefits that can be estimated properly during the course of the project...

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Answer 1

Expert Solution & Answer

Chapter 4, Problem 35CP

a.

Explanation of Solution

Costs and benefits required for implementing Inventory Tracking System at American Labs:

The costs for implementing Inventory Tracking System at American Labs include:

One-time costs

It is the cost associated with starting phases of a project during project initiation and planning.

Recurring costs

It is the cost that results from present evolution and use of the proposed system.

The benefits for implementing Inventory Tracking System at American Labs:

Tangible benefits

These are the benefits that can be estimated properly during the course of the project...

b.

Explanation of Solution

Economic feasibility analysis for implementing inventory tracking system:

Monetary benefits of an information system = $50,000 per year.

One-time costs = $80,000

Recurring cost = $25,000 per year.

Discount rate = 10%

Time period = 5 years

Present value for benefits and costs can be calculated by using the formula:

$PVn= Y × 1/(1+i)n$

Here PV_n is the present value and i is the discount rate.

Present value (PV) calculation for benefits:

Benefits starts from year 1, hence calculation of present value starts from year 1.

$PV0= 0 × 1 / (1+ 0.10)0= 0×1 = 0$

$PV1= 50,000 × 1/ (1+.10)1= 50,000×0.909 = 45,450$

$PV2= 50,000 × 1/ (1+.10)2= 50,000×0.8264 = 41,320$

$PV3= 50,000×1/ (1+.10)3= 50,000×0.7513= 37,565$

$PV4= 50,000×1/ (1+.10)4= 50,000×0.683 = 34,150$

$PV5= 50,000×1/ (1+.10)5= 50,000×0.6209 = 31,045$

Net Present Value (NPV) for benefits:

$NPV = PV0+ PV1+ PV2+ PV3+ PV4+ PV5 = 0 + 45,450 + 41,320 + 37,565 + 34,150 + 31,045 = 189,530$

Present Value (PV) for costs:

$PV0= 80,000×1/ (1+.10)0= 80,000×1 = 80,000$

$PV1= 25,000×1/ (1+$

c.

Explanation of Solution

Modified Economic Feasibility Analysis for implementing inventory tracking system at discount rate(11%):

Monetary benefits of an information system = $50,000 per year.

One-time costs = $80,000

Recurring cost = $25,000 per year.

Discount rate = 11%

Time period = 5 years

Present value for benefits and costs can be calculated by using the formula:

$PVn= Y × 1/(1+i)n$

Here PV_n is the present value and i is the discount rate.

Present value (PV) calculation for benefits:

Benefits starts from year 1, hence calculation of present value starts from year 1.

$PV0= 0 × 1 / (1+0.11)0= 0×1 = 0$

$PV1= 50,000 × 1/ (1+.11)1= 50,000×0.9009 = 45,045$

$PV2= 50,000 × 1/ (1+.11)2= 50,000×0.8116 = 40,580$

$PV3= 50,000×1/ (1+.11)3= 25,000×0.7311= 36,555$

$PV4= 50,000×1/ (1+.11)4= 50,000×0.6587 = 32,935$

$PV5= 50,000×1/ (1+.11)5= 50,000×0.5934 = 29,670$

Net Present Value (NPV) for benefits:

$NPV = PV0+ PV1+ PV2+ PV3+ PV4+ PV5            = 0 + 45,045 + 40,580 + 36,555 + 32,935 + 29,670         = 184,785$

Present Value (PV) for costs:

$PV0= 80,000×1/ (1+.11)0= 80,000×1 = 80,000$

$PV1= 25,000×1/ (1+.11)1= 25,000×0.9009 = 22,522$

$PV2= 25,000×1/ (1+.11)2= 25,000×0.8116 = 20,290$

$PV3= 25,000×1/ (1+.11)3= 25,000×0.7311=18,277$

$PV4= 25,000×1/ (1+.11)4= 25,000×0.6587 = 16,467$

$PV5= 25,000×1/ (1+.11)5= 25,000×0.5934 = 14,835$

Net Present Value (NPV) for costs:

$NPV = PV0+ PV1+PV2+ PV3+ PV4+ PV5           = 80,000 + 22,522 + 20,290 + 18,277 + 16,467 + 14,835           = 172,392$

Overall Return on Investment (ROI):

Overall return on investment can be calculated as:

$Overall ROI = (Overall NPV / NPV of all costs)$

$Overall NPV = (NPV of all benefits – NPV of all costs)                       = 184,785 – 172,392                       = 12,393$

$Overall ROI = 12,393 / 172,392                   = 0.07$

Break-Even Analysis (BEA):

Break even analysis is carried out by determining NPV of yearly cash flows.

The yearly cash flows are calculated by subtracting present values of recurring costs from the present value of yearly benefits.

The overall NPV cash flow is total cash flow of the preceding years.

After determining NPV yearly cash flows, it is found that break even occurs between years three and four.

This is because here overall NPV is positive.

Modified Economic Feasibility Analysis for implementing inventory tracking system at discount rate (14%):

Monetary benefits of an information system = $50,000 per year

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Answer 2

Expert Solution & Answer

Chapter 4, Problem 35CP

a.

Explanation of Solution

Costs and benefits required for implementing Inventory Tracking System at American Labs:

The costs for implementing Inventory Tracking System at American Labs include:

One-time costs

It is the cost associated with starting phases of a project during project initiation and planning.

Recurring costs

It is the cost that results from present evolution and use of the proposed system.

The benefits for implementing Inventory Tracking System at American Labs:

Tangible benefits

These are the benefits that can be estimated properly during the course of the project...

b.

Explanation of Solution

Economic feasibility analysis for implementing inventory tracking system:

Monetary benefits of an information system = $50,000 per year.

One-time costs = $80,000

Recurring cost = $25,000 per year.

Discount rate = 10%

Time period = 5 years

Present value for benefits and costs can be calculated by using the formula:

$PVn= Y × 1/(1+i)n$

Here PV_n is the present value and i is the discount rate.

Present value (PV) calculation for benefits:

Benefits starts from year 1, hence calculation of present value starts from year 1.

$PV0= 0 × 1 / (1+ 0.10)0= 0×1 = 0$

$PV1= 50,000 × 1/ (1+.10)1= 50,000×0.909 = 45,450$

$PV2= 50,000 × 1/ (1+.10)2= 50,000×0.8264 = 41,320$

$PV3= 50,000×1/ (1+.10)3= 50,000×0.7513= 37,565$

$PV4= 50,000×1/ (1+.10)4= 50,000×0.683 = 34,150$

$PV5= 50,000×1/ (1+.10)5= 50,000×0.6209 = 31,045$

Net Present Value (NPV) for benefits:

$NPV = PV0+ PV1+ PV2+ PV3+ PV4+ PV5 = 0 + 45,450 + 41,320 + 37,565 + 34,150 + 31,045 = 189,530$

Present Value (PV) for costs:

$PV0= 80,000×1/ (1+.10)0= 80,000×1 = 80,000$

$PV1= 25,000×1/ (1+$

c.

Explanation of Solution

Modified Economic Feasibility Analysis for implementing inventory tracking system at discount rate(11%):

Monetary benefits of an information system = $50,000 per year.

One-time costs = $80,000

Recurring cost = $25,000 per year.

Discount rate = 11%

Time period = 5 years

Present value for benefits and costs can be calculated by using the formula:

$PVn= Y × 1/(1+i)n$

Here PV_n is the present value and i is the discount rate.

Present value (PV) calculation for benefits:

Benefits starts from year 1, hence calculation of present value starts from year 1.

$PV0= 0 × 1 / (1+0.11)0= 0×1 = 0$

$PV1= 50,000 × 1/ (1+.11)1= 50,000×0.9009 = 45,045$

$PV2= 50,000 × 1/ (1+.11)2= 50,000×0.8116 = 40,580$

$PV3= 50,000×1/ (1+.11)3= 25,000×0.7311= 36,555$

$PV4= 50,000×1/ (1+.11)4= 50,000×0.6587 = 32,935$

$PV5= 50,000×1/ (1+.11)5= 50,000×0.5934 = 29,670$

Net Present Value (NPV) for benefits:

$NPV = PV0+ PV1+ PV2+ PV3+ PV4+ PV5            = 0 + 45,045 + 40,580 + 36,555 + 32,935 + 29,670         = 184,785$

Present Value (PV) for costs:

$PV0= 80,000×1/ (1+.11)0= 80,000×1 = 80,000$

$PV1= 25,000×1/ (1+.11)1= 25,000×0.9009 = 22,522$

$PV2= 25,000×1/ (1+.11)2= 25,000×0.8116 = 20,290$

$PV3= 25,000×1/ (1+.11)3= 25,000×0.7311=18,277$

$PV4= 25,000×1/ (1+.11)4= 25,000×0.6587 = 16,467$

$PV5= 25,000×1/ (1+.11)5= 25,000×0.5934 = 14,835$

Net Present Value (NPV) for costs:

$NPV = PV0+ PV1+PV2+ PV3+ PV4+ PV5           = 80,000 + 22,522 + 20,290 + 18,277 + 16,467 + 14,835           = 172,392$

Overall Return on Investment (ROI):

Overall return on investment can be calculated as:

$Overall ROI = (Overall NPV / NPV of all costs)$

$Overall NPV = (NPV of all benefits – NPV of all costs)                       = 184,785 – 172,392                       = 12,393$

$Overall ROI = 12,393 / 172,392                   = 0.07$

Break-Even Analysis (BEA):

Break even analysis is carried out by determining NPV of yearly cash flows.

The yearly cash flows are calculated by subtracting present values of recurring costs from the present value of yearly benefits.

The overall NPV cash flow is total cash flow of the preceding years.

After determining NPV yearly cash flows, it is found that break even occurs between years three and four.

This is because here overall NPV is positive.

Modified Economic Feasibility Analysis for implementing inventory tracking system at discount rate (14%):

Monetary benefits of an information system = $50,000 per year

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 3

Expert Solution & Answer

Chapter 4, Problem 35CP

a.

Explanation of Solution

Costs and benefits required for implementing Inventory Tracking System at American Labs:

The costs for implementing Inventory Tracking System at American Labs include:

One-time costs

It is the cost associated with starting phases of a project during project initiation and planning.

Recurring costs

It is the cost that results from present evolution and use of the proposed system.

The benefits for implementing Inventory Tracking System at American Labs:

Tangible benefits

These are the benefits that can be estimated properly during the course of the project...

b.

Explanation of Solution

Economic feasibility analysis for implementing inventory tracking system:

Monetary benefits of an information system = $50,000 per year.

One-time costs = $80,000

Recurring cost = $25,000 per year.

Discount rate = 10%

Time period = 5 years

Present value for benefits and costs can be calculated by using the formula:

$PVn= Y × 1/(1+i)n$

Here PV_n is the present value and i is the discount rate.

Present value (PV) calculation for benefits:

Benefits starts from year 1, hence calculation of present value starts from year 1.

$PV0= 0 × 1 / (1+ 0.10)0= 0×1 = 0$

$PV1= 50,000 × 1/ (1+.10)1= 50,000×0.909 = 45,450$

$PV2= 50,000 × 1/ (1+.10)2= 50,000×0.8264 = 41,320$

$PV3= 50,000×1/ (1+.10)3= 50,000×0.7513= 37,565$

$PV4= 50,000×1/ (1+.10)4= 50,000×0.683 = 34,150$

$PV5= 50,000×1/ (1+.10)5= 50,000×0.6209 = 31,045$

Net Present Value (NPV) for benefits:

$NPV = PV0+ PV1+ PV2+ PV3+ PV4+ PV5 = 0 + 45,450 + 41,320 + 37,565 + 34,150 + 31,045 = 189,530$

Present Value (PV) for costs:

$PV0= 80,000×1/ (1+.10)0= 80,000×1 = 80,000$

$PV1= 25,000×1/ (1+$

c.

Explanation of Solution

Modified Economic Feasibility Analysis for implementing inventory tracking system at discount rate(11%):

Monetary benefits of an information system = $50,000 per year.

One-time costs = $80,000

Recurring cost = $25,000 per year.

Discount rate = 11%

Time period = 5 years

Present value for benefits and costs can be calculated by using the formula:

$PVn= Y × 1/(1+i)n$

Here PV_n is the present value and i is the discount rate.

Present value (PV) calculation for benefits:

Benefits starts from year 1, hence calculation of present value starts from year 1.

$PV0= 0 × 1 / (1+0.11)0= 0×1 = 0$

$PV1= 50,000 × 1/ (1+.11)1= 50,000×0.9009 = 45,045$

$PV2= 50,000 × 1/ (1+.11)2= 50,000×0.8116 = 40,580$

$PV3= 50,000×1/ (1+.11)3= 25,000×0.7311= 36,555$

$PV4= 50,000×1/ (1+.11)4= 50,000×0.6587 = 32,935$

$PV5= 50,000×1/ (1+.11)5= 50,000×0.5934 = 29,670$

Net Present Value (NPV) for benefits:

$NPV = PV0+ PV1+ PV2+ PV3+ PV4+ PV5            = 0 + 45,045 + 40,580 + 36,555 + 32,935 + 29,670         = 184,785$

Present Value (PV) for costs:

$PV0= 80,000×1/ (1+.11)0= 80,000×1 = 80,000$

$PV1= 25,000×1/ (1+.11)1= 25,000×0.9009 = 22,522$

$PV2= 25,000×1/ (1+.11)2= 25,000×0.8116 = 20,290$

$PV3= 25,000×1/ (1+.11)3= 25,000×0.7311=18,277$

$PV4= 25,000×1/ (1+.11)4= 25,000×0.6587 = 16,467$

$PV5= 25,000×1/ (1+.11)5= 25,000×0.5934 = 14,835$

Net Present Value (NPV) for costs:

$NPV = PV0+ PV1+PV2+ PV3+ PV4+ PV5           = 80,000 + 22,522 + 20,290 + 18,277 + 16,467 + 14,835           = 172,392$

Overall Return on Investment (ROI):

Overall return on investment can be calculated as:

$Overall ROI = (Overall NPV / NPV of all costs)$

$Overall NPV = (NPV of all benefits – NPV of all costs)                       = 184,785 – 172,392                       = 12,393$

$Overall ROI = 12,393 / 172,392                   = 0.07$

Break-Even Analysis (BEA):

Break even analysis is carried out by determining NPV of yearly cash flows.

The yearly cash flows are calculated by subtracting present values of recurring costs from the present value of yearly benefits.

The overall NPV cash flow is total cash flow of the preceding years.

After determining NPV yearly cash flows, it is found that break even occurs between years three and four.

This is because here overall NPV is positive.

Modified Economic Feasibility Analysis for implementing inventory tracking system at discount rate (14%):

Monetary benefits of an information system = $50,000 per year

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 4

Expert Solution & Answer

Chapter 4, Problem 35CP

a.

Explanation of Solution

Costs and benefits required for implementing Inventory Tracking System at American Labs:

The costs for implementing Inventory Tracking System at American Labs include:

One-time costs

It is the cost associated with starting phases of a project during project initiation and planning.

Recurring costs

It is the cost that results from present evolution and use of the proposed system.

The benefits for implementing Inventory Tracking System at American Labs:

Tangible benefits

These are the benefits that can be estimated properly during the course of the project...

b.

Explanation of Solution

Economic feasibility analysis for implementing inventory tracking system:

Monetary benefits of an information system = $50,000 per year.

One-time costs = $80,000

Recurring cost = $25,000 per year.

Discount rate = 10%

Time period = 5 years

Present value for benefits and costs can be calculated by using the formula:

$PVn= Y × 1/(1+i)n$

Here PV_n is the present value and i is the discount rate.

Present value (PV) calculation for benefits:

Benefits starts from year 1, hence calculation of present value starts from year 1.

$PV0= 0 × 1 / (1+ 0.10)0= 0×1 = 0$

$PV1= 50,000 × 1/ (1+.10)1= 50,000×0.909 = 45,450$

$PV2= 50,000 × 1/ (1+.10)2= 50,000×0.8264 = 41,320$

$PV3= 50,000×1/ (1+.10)3= 50,000×0.7513= 37,565$

$PV4= 50,000×1/ (1+.10)4= 50,000×0.683 = 34,150$

$PV5= 50,000×1/ (1+.10)5= 50,000×0.6209 = 31,045$

Net Present Value (NPV) for benefits:

$NPV = PV0+ PV1+ PV2+ PV3+ PV4+ PV5 = 0 + 45,450 + 41,320 + 37,565 + 34,150 + 31,045 = 189,530$

Present Value (PV) for costs:

$PV0= 80,000×1/ (1+.10)0= 80,000×1 = 80,000$

$PV1= 25,000×1/ (1+$

c.

Explanation of Solution

Modified Economic Feasibility Analysis for implementing inventory tracking system at discount rate(11%):

Monetary benefits of an information system = $50,000 per year.

One-time costs = $80,000

Recurring cost = $25,000 per year.

Discount rate = 11%

Time period = 5 years

Present value for benefits and costs can be calculated by using the formula:

$PVn= Y × 1/(1+i)n$

Here PV_n is the present value and i is the discount rate.

Present value (PV) calculation for benefits:

Benefits starts from year 1, hence calculation of present value starts from year 1.

$PV0= 0 × 1 / (1+0.11)0= 0×1 = 0$

$PV1= 50,000 × 1/ (1+.11)1= 50,000×0.9009 = 45,045$

$PV2= 50,000 × 1/ (1+.11)2= 50,000×0.8116 = 40,580$

$PV3= 50,000×1/ (1+.11)3= 25,000×0.7311= 36,555$

$PV4= 50,000×1/ (1+.11)4= 50,000×0.6587 = 32,935$

$PV5= 50,000×1/ (1+.11)5= 50,000×0.5934 = 29,670$

Net Present Value (NPV) for benefits:

$NPV = PV0+ PV1+ PV2+ PV3+ PV4+ PV5            = 0 + 45,045 + 40,580 + 36,555 + 32,935 + 29,670         = 184,785$

Present Value (PV) for costs:

$PV0= 80,000×1/ (1+.11)0= 80,000×1 = 80,000$

$PV1= 25,000×1/ (1+.11)1= 25,000×0.9009 = 22,522$

$PV2= 25,000×1/ (1+.11)2= 25,000×0.8116 = 20,290$

$PV3= 25,000×1/ (1+.11)3= 25,000×0.7311=18,277$

$PV4= 25,000×1/ (1+.11)4= 25,000×0.6587 = 16,467$

$PV5= 25,000×1/ (1+.11)5= 25,000×0.5934 = 14,835$

Net Present Value (NPV) for costs:

$NPV = PV0+ PV1+PV2+ PV3+ PV4+ PV5           = 80,000 + 22,522 + 20,290 + 18,277 + 16,467 + 14,835           = 172,392$

Overall Return on Investment (ROI):

Overall return on investment can be calculated as:

$Overall ROI = (Overall NPV / NPV of all costs)$

$Overall NPV = (NPV of all benefits – NPV of all costs)                       = 184,785 – 172,392                       = 12,393$

$Overall ROI = 12,393 / 172,392                   = 0.07$

Break-Even Analysis (BEA):

Break even analysis is carried out by determining NPV of yearly cash flows.

The yearly cash flows are calculated by subtracting present values of recurring costs from the present value of yearly benefits.

The overall NPV cash flow is total cash flow of the preceding years.

After determining NPV yearly cash flows, it is found that break even occurs between years three and four.

This is because here overall NPV is positive.

Modified Economic Feasibility Analysis for implementing inventory tracking system at discount rate (14%):

Monetary benefits of an information system = $50,000 per year

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 5

Expert Solution & Answer

Answer 6

Expert Solution & Answer

Answer 7

Chapter 4, Problem 35CP

a.

Explanation of Solution

Costs and benefits required for implementing Inventory Tracking System at American Labs:

The costs for implementing Inventory Tracking System at American Labs include:

One-time costs

It is the cost associated with starting phases of a project during project initiation and planning.

Recurring costs

It is the cost that results from present evolution and use of the proposed system.

The benefits for implementing Inventory Tracking System at American Labs:

Tangible benefits

These are the benefits that can be estimated properly during the course of the project...

b.

Explanation of Solution

Economic feasibility analysis for implementing inventory tracking system:

Monetary benefits of an information system = $50,000 per year.

One-time costs = $80,000

Recurring cost = $25,000 per year.

Discount rate = 10%

Time period = 5 years

Present value for benefits and costs can be calculated by using the formula:

$PVn= Y × 1/(1+i)n$

Here PV_n is the present value and i is the discount rate.

Present value (PV) calculation for benefits:

Benefits starts from year 1, hence calculation of present value starts from year 1.

$PV0= 0 × 1 / (1+ 0.10)0= 0×1 = 0$

$PV1= 50,000 × 1/ (1+.10)1= 50,000×0.909 = 45,450$

$PV2= 50,000 × 1/ (1+.10)2= 50,000×0.8264 = 41,320$

$PV3= 50,000×1/ (1+.10)3= 50,000×0.7513= 37,565$

$PV4= 50,000×1/ (1+.10)4= 50,000×0.683 = 34,150$

$PV5= 50,000×1/ (1+.10)5= 50,000×0.6209 = 31,045$

Net Present Value (NPV) for benefits:

$NPV = PV0+ PV1+ PV2+ PV3+ PV4+ PV5 = 0 + 45,450 + 41,320 + 37,565 + 34,150 + 31,045 = 189,530$

Present Value (PV) for costs:

$PV0= 80,000×1/ (1+.10)0= 80,000×1 = 80,000$

$PV1= 25,000×1/ (1+$

c.

Explanation of Solution

Modified Economic Feasibility Analysis for implementing inventory tracking system at discount rate(11%):

Monetary benefits of an information system = $50,000 per year.

One-time costs = $80,000

Recurring cost = $25,000 per year.

Discount rate = 11%

Time period = 5 years

Present value for benefits and costs can be calculated by using the formula:

$PVn= Y × 1/(1+i)n$

Here PV_n is the present value and i is the discount rate.

Present value (PV) calculation for benefits:

Benefits starts from year 1, hence calculation of present value starts from year 1.

$PV0= 0 × 1 / (1+0.11)0= 0×1 = 0$

$PV1= 50,000 × 1/ (1+.11)1= 50,000×0.9009 = 45,045$

$PV2= 50,000 × 1/ (1+.11)2= 50,000×0.8116 = 40,580$

$PV3= 50,000×1/ (1+.11)3= 25,000×0.7311= 36,555$

$PV4= 50,000×1/ (1+.11)4= 50,000×0.6587 = 32,935$

$PV5= 50,000×1/ (1+.11)5= 50,000×0.5934 = 29,670$

Net Present Value (NPV) for benefits:

$NPV = PV0+ PV1+ PV2+ PV3+ PV4+ PV5            = 0 + 45,045 + 40,580 + 36,555 + 32,935 + 29,670         = 184,785$

Present Value (PV) for costs:

$PV0= 80,000×1/ (1+.11)0= 80,000×1 = 80,000$

$PV1= 25,000×1/ (1+.11)1= 25,000×0.9009 = 22,522$

$PV2= 25,000×1/ (1+.11)2= 25,000×0.8116 = 20,290$

$PV3= 25,000×1/ (1+.11)3= 25,000×0.7311=18,277$

$PV4= 25,000×1/ (1+.11)4= 25,000×0.6587 = 16,467$

$PV5= 25,000×1/ (1+.11)5= 25,000×0.5934 = 14,835$

Net Present Value (NPV) for costs:

$NPV = PV0+ PV1+PV2+ PV3+ PV4+ PV5           = 80,000 + 22,522 + 20,290 + 18,277 + 16,467 + 14,835           = 172,392$

Overall Return on Investment (ROI):

Overall return on investment can be calculated as:

$Overall ROI = (Overall NPV / NPV of all costs)$

$Overall NPV = (NPV of all benefits – NPV of all costs)                       = 184,785 – 172,392                       = 12,393$

$Overall ROI = 12,393 / 172,392                   = 0.07$

Break-Even Analysis (BEA):

Break even analysis is carried out by determining NPV of yearly cash flows.

The yearly cash flows are calculated by subtracting present values of recurring costs from the present value of yearly benefits.

The overall NPV cash flow is total cash flow of the preceding years.

After determining NPV yearly cash flows, it is found that break even occurs between years three and four.

This is because here overall NPV is positive.

Modified Economic Feasibility Analysis for implementing inventory tracking system at discount rate (14%):

Monetary benefits of an information system = $50,000 per year

Answer 8

Chapter 4, Problem 35CP

a.

Explanation of Solution

Costs and benefits required for implementing Inventory Tracking System at American Labs:

The costs for implementing Inventory Tracking System at American Labs include:

One-time costs

It is the cost associated with starting phases of a project during project initiation and planning.

Recurring costs

It is the cost that results from present evolution and use of the proposed system.

The benefits for implementing Inventory Tracking System at American Labs:

Tangible benefits

These are the benefits that can be estimated properly during the course of the project...

Answer 9

Chapter 4, Problem 35CP

a.

Explanation of Solution

Costs and benefits required for implementing Inventory Tracking System at American Labs:

The costs for implementing Inventory Tracking System at American Labs include:

One-time costs

It is the cost associated with starting phases of a project during project initiation and planning.

Recurring costs

It is the cost that results from present evolution and use of the proposed system.

The benefits for implementing Inventory Tracking System at American Labs:

Tangible benefits

These are the benefits that can be estimated properly during the course of the project...

Answer 10

b.

Explanation of Solution

Economic feasibility analysis for implementing inventory tracking system:

Monetary benefits of an information system = $50,000 per year.

One-time costs = $80,000

Recurring cost = $25,000 per year.

Discount rate = 10%

Time period = 5 years

Present value for benefits and costs can be calculated by using the formula:

$PVn= Y × 1/(1+i)n$

Here PV_n is the present value and i is the discount rate.

Present value (PV) calculation for benefits:

Benefits starts from year 1, hence calculation of present value starts from year 1.

$PV0= 0 × 1 / (1+ 0.10)0= 0×1 = 0$

$PV1= 50,000 × 1/ (1+.10)1= 50,000×0.909 = 45,450$

$PV2= 50,000 × 1/ (1+.10)2= 50,000×0.8264 = 41,320$

$PV3= 50,000×1/ (1+.10)3= 50,000×0.7513= 37,565$

$PV4= 50,000×1/ (1+.10)4= 50,000×0.683 = 34,150$

$PV5= 50,000×1/ (1+.10)5= 50,000×0.6209 = 31,045$

Net Present Value (NPV) for benefits:

$NPV = PV0+ PV1+ PV2+ PV3+ PV4+ PV5 = 0 + 45,450 + 41,320 + 37,565 + 34,150 + 31,045 = 189,530$

Present Value (PV) for costs:

$PV0= 80,000×1/ (1+.10)0= 80,000×1 = 80,000$

$PV1= 25,000×1/ (1+$

Answer 11

b.

Explanation of Solution

Economic feasibility analysis for implementing inventory tracking system:

Monetary benefits of an information system = $50,000 per year.

One-time costs = $80,000

Recurring cost = $25,000 per year.

Discount rate = 10%

Time period = 5 years

Present value for benefits and costs can be calculated by using the formula:

$PVn= Y × 1/(1+i)n$

Here PV_n is the present value and i is the discount rate.

Present value (PV) calculation for benefits:

Benefits starts from year 1, hence calculation of present value starts from year 1.

$PV0= 0 × 1 / (1+ 0.10)0= 0×1 = 0$

$PV1= 50,000 × 1/ (1+.10)1= 50,000×0.909 = 45,450$

$PV2= 50,000 × 1/ (1+.10)2= 50,000×0.8264 = 41,320$

$PV3= 50,000×1/ (1+.10)3= 50,000×0.7513= 37,565$

$PV4= 50,000×1/ (1+.10)4= 50,000×0.683 = 34,150$

$PV5= 50,000×1/ (1+.10)5= 50,000×0.6209 = 31,045$

Net Present Value (NPV) for benefits:

$NPV = PV0+ PV1+ PV2+ PV3+ PV4+ PV5 = 0 + 45,450 + 41,320 + 37,565 + 34,150 + 31,045 = 189,530$

Present Value (PV) for costs:

$PV0= 80,000×1/ (1+.10)0= 80,000×1 = 80,000$

$PV1= 25,000×1/ (1+$

Answer 12

c.

Explanation of Solution

Modified Economic Feasibility Analysis for implementing inventory tracking system at discount rate(11%):

Monetary benefits of an information system = $50,000 per year.

One-time costs = $80,000

Recurring cost = $25,000 per year.

Discount rate = 11%

Time period = 5 years

Present value for benefits and costs can be calculated by using the formula:

$PVn= Y × 1/(1+i)n$

Here PV_n is the present value and i is the discount rate.

Present value (PV) calculation for benefits:

Benefits starts from year 1, hence calculation of present value starts from year 1.

$PV0= 0 × 1 / (1+0.11)0= 0×1 = 0$

$PV1= 50,000 × 1/ (1+.11)1= 50,000×0.9009 = 45,045$

$PV2= 50,000 × 1/ (1+.11)2= 50,000×0.8116 = 40,580$

$PV3= 50,000×1/ (1+.11)3= 25,000×0.7311= 36,555$

$PV4= 50,000×1/ (1+.11)4= 50,000×0.6587 = 32,935$

$PV5= 50,000×1/ (1+.11)5= 50,000×0.5934 = 29,670$

Net Present Value (NPV) for benefits:

$NPV = PV0+ PV1+ PV2+ PV3+ PV4+ PV5            = 0 + 45,045 + 40,580 + 36,555 + 32,935 + 29,670         = 184,785$

Present Value (PV) for costs:

$PV0= 80,000×1/ (1+.11)0= 80,000×1 = 80,000$

$PV1= 25,000×1/ (1+.11)1= 25,000×0.9009 = 22,522$

$PV2= 25,000×1/ (1+.11)2= 25,000×0.8116 = 20,290$

$PV3= 25,000×1/ (1+.11)3= 25,000×0.7311=18,277$

$PV4= 25,000×1/ (1+.11)4= 25,000×0.6587 = 16,467$

$PV5= 25,000×1/ (1+.11)5= 25,000×0.5934 = 14,835$

Net Present Value (NPV) for costs:

$NPV = PV0+ PV1+PV2+ PV3+ PV4+ PV5           = 80,000 + 22,522 + 20,290 + 18,277 + 16,467 + 14,835           = 172,392$

Overall Return on Investment (ROI):

Overall return on investment can be calculated as:

$Overall ROI = (Overall NPV / NPV of all costs)$

$Overall NPV = (NPV of all benefits – NPV of all costs)                       = 184,785 – 172,392                       = 12,393$

$Overall ROI = 12,393 / 172,392                   = 0.07$

Break-Even Analysis (BEA):

Break even analysis is carried out by determining NPV of yearly cash flows.

The yearly cash flows are calculated by subtracting present values of recurring costs from the present value of yearly benefits.

The overall NPV cash flow is total cash flow of the preceding years.

After determining NPV yearly cash flows, it is found that break even occurs between years three and four.

This is because here overall NPV is positive.

Modified Economic Feasibility Analysis for implementing inventory tracking system at discount rate (14%):

Monetary benefits of an information system = $50,000 per year

Answer 13

c.

Explanation of Solution

Modified Economic Feasibility Analysis for implementing inventory tracking system at discount rate(11%):

Monetary benefits of an information system = $50,000 per year.

One-time costs = $80,000

Recurring cost = $25,000 per year.

Discount rate = 11%

Time period = 5 years

Present value for benefits and costs can be calculated by using the formula:

$PVn= Y × 1/(1+i)n$

Here PV_n is the present value and i is the discount rate.

Present value (PV) calculation for benefits:

Benefits starts from year 1, hence calculation of present value starts from year 1.

$PV0= 0 × 1 / (1+0.11)0= 0×1 = 0$

$PV1= 50,000 × 1/ (1+.11)1= 50,000×0.9009 = 45,045$

$PV2= 50,000 × 1/ (1+.11)2= 50,000×0.8116 = 40,580$

$PV3= 50,000×1/ (1+.11)3= 25,000×0.7311= 36,555$

$PV4= 50,000×1/ (1+.11)4= 50,000×0.6587 = 32,935$

$PV5= 50,000×1/ (1+.11)5= 50,000×0.5934 = 29,670$

Net Present Value (NPV) for benefits:

$NPV = PV0+ PV1+ PV2+ PV3+ PV4+ PV5            = 0 + 45,045 + 40,580 + 36,555 + 32,935 + 29,670         = 184,785$

Present Value (PV) for costs:

$PV0= 80,000×1/ (1+.11)0= 80,000×1 = 80,000$

$PV1= 25,000×1/ (1+.11)1= 25,000×0.9009 = 22,522$

$PV2= 25,000×1/ (1+.11)2= 25,000×0.8116 = 20,290$

$PV3= 25,000×1/ (1+.11)3= 25,000×0.7311=18,277$

$PV4= 25,000×1/ (1+.11)4= 25,000×0.6587 = 16,467$

$PV5= 25,000×1/ (1+.11)5= 25,000×0.5934 = 14,835$

Net Present Value (NPV) for costs:

$NPV = PV0+ PV1+PV2+ PV3+ PV4+ PV5           = 80,000 + 22,522 + 20,290 + 18,277 + 16,467 + 14,835           = 172,392$

Overall Return on Investment (ROI):

Overall return on investment can be calculated as:

$Overall ROI = (Overall NPV / NPV of all costs)$

$Overall NPV = (NPV of all benefits – NPV of all costs)                       = 184,785 – 172,392                       = 12,393$

$Overall ROI = 12,393 / 172,392                   = 0.07$

Break-Even Analysis (BEA):

Break even analysis is carried out by determining NPV of yearly cash flows.

The yearly cash flows are calculated by subtracting present values of recurring costs from the present value of yearly benefits.

The overall NPV cash flow is total cash flow of the preceding years.

After determining NPV yearly cash flows, it is found that break even occurs between years three and four.

This is because here overall NPV is positive.

Modified Economic Feasibility Analysis for implementing inventory tracking system at discount rate (14%):

Monetary benefits of an information system = $50,000 per year

Answer 14

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Answer 15

Ch. 4 - Prob. 1M Ch. 4 - Prob. 2M Ch. 4 - Prob. 3M Ch. 4 - Prob. 4M Ch. 4 - Prob. 5M Ch. 4 - Prob. 6M Ch. 4 - Prob. 7M Ch. 4 - Prob. 8M Ch. 4 - Prob. 9M Ch. 4 - Prob. 10M

Solution Summary: The author explains the costs and benefits required for implementing Inventory Tracking System at American Labs. Monetary benefits of an information system = 50,000 per year. One-time costs = 80,000 Recurring cost = 25,000 per

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