West Coast Gas wants to move its sales order system to the web. Under the proposed sys- tem, gas stations and other merchants will use a web browser and, after typing in a pass- word for the West Coast Gas webpage, will be able 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 Yun Ma believes that dealers will not adopt the new web system unless West Coast Gas provides financial assistance to help them purchase or upgrade their PCs. Ma estimates this one-time cost at $760,000. West Coast 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 West Coast Gas to eliminate 25 clerical positions. Ma estimates that the benefits of the new system’s lower labour costs will have a present value of $1,370,000.
Requirement
Use a cost-benefit analysis to recommend to Ma whether West Coast Gas should proceed
with the web-based ordering system. Give your reasons, showing supporting calculations.