Mid-West Gas wants to move its sales order system to the internet. Under the proposed system, gas stations and other merchants will use a password-protected site to check the availability and current price of various products and place an order. Currently, customer service representatives take dealers' orders over the phone; they record the information on a paper form, then manually enter it into the firm's computer system.
CFO Carrie Smith believes that dealers will not adopt the new internet system unless Mid-West Gas provides financial assistance to help them purchase or upgrade their computer systems. Smith estimates this one-time cost at $760,000. Mid-West Gas will also have to invest $155,000 in upgrading its own computer hardware. The cost of the software and the consulting fee for installing the system will be $225,000. The Web system will enable Mid-West Gas to eliminate 25 clerical positions. Smith estimates that the benefits of the new system's lower labor costs will have saved the company $1,370,000.
Requirement
Use a cost-benefit analysis to recommend to Smith whether Mid-West Gas should proceed with the internet-based ordering system. Give your reasons, showing supporting calculations.