Hammond Enterprises offers an e-commerce service that is managed inhouse at an equivalent AW of $3.50 million
Question:
Hammond Enterprises offers an e-commerce service that is managed inhouse at an equivalent AW of $3.50 million based on past NCF values. An international, outsourcing contractor can provide improved services for a guaranteed 5-year period starting at $4.5 million per year with an annual increase of 3% on the contract cost, assuming the same current revenue base of $8.3 million per year. Estimates to increase revenue to $9.5 million per year and remain an inhouse provider over a 5-year study period require an initial investment of $5 million and an AOC of $3 million. At a market MARR of 13.4% per year, assuming an industry- wide inflation of 5% per year, select the economically better alternative with inflation
(a) not considered
(b) considered
(c) With your selection, what is expected to happen to revenue?
(d) (Spreadsheet exercise) Perform the analysis using a spreadsheet.
