Chapter 14 Running Case Assignment: Improving Decision Making: Using

Spreadsheet Software to Analyze the Return on a New System Investment

Software skills: Spreadsheet formulas and functions

Business skills: Capital budgeting

This project provides you with an opportunity to use spreadsheet software to use the

capital budgeting models discussed in this chapter to analyze the return on a new

information system investment for a real-world company.

Dirt Bikess management would like to analyze the return on its investment in its

employee training and skills tracking system described in Chapter 13. The system runs on

the human resources specialists PCs using PC database software. Because the entire

corporate administrative staff recently received new desktop PC systems with database

and other productivity software, there are no additional hardware and software purchase

costs. The main costs include the initial cost of designing and implementing the database

(business staff cost of $5,000; information systems staff cost of $15,000), gathering and

adding employee skills and training data to the database ($5,500 initial data conversion

cost plus $1,000 annual data entry costs), and ongoing maintenance and support ($3,000

annually). Human resources staff members believe the new application could save each

of them two hours of work per week. (Their annual salaries are $37,000 and $42,000

each.) The company would also save about $11,000 annually in employee recruiting costs

because it would be able to fill many vacant positions with existing employees, thereby

reducing its costs for recruiting outside the company. The system would not be installed

until the end of 2014 and would return benefits from 2015 to 2019.

Prepare a business report for management analyzing the return on the investment

for this system over a five-year period using the following capital budgeting

models: net present value, return on investment (ROI), internal rate of return

(IRR), and payback method. Assume a 5 percent interest rate for your net present

value calculations. Use spreadsheet software for your calculations. 40 hours working per week