Daniel has used Best & Less’s salesforce to conduct a telephone survey of existing customers, and that has suggested that an additionalAU$80,000 of business might be secured each year via the internet. Assessing the likely amount of additional business (from new customers) is more difficult but a recent travel industry survey concluded that firms could attract 10–15 per cent new customers through e-commerce. If true, this would mean that Best & Less could obtain between AU$78,000 and AU$120,000 per annum more business through web bookings, but the directors, wishing to be cautious, have opted for the lower figure. In total, then, it seems as if the internet booking system should secure an additional AU$178,000 worth of business annually. The directors want to break even on their investment in three years and so this suggests a maximum cost for the internet development of AU$384,000. Initial discussions with various potential software vendors, including their preferred partner Eagles iTechnology, suggest that a system could be developed for AU$376,000. On that basis, the directors approve the business case.

Calculate the cost estimation and NPV?

Answer rating: 100% (QA)

The cost estimation for the internet development project is AU376... View the full answer