PROJECT MANAGEMENT $-$ HOMEWORK $1$

$$

Total:$/10$

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Given the information below on Options $1$ and $2$ for a software project, carry out the following analysis:

$$ ROI

$$ NPV

Option $1$: Purchase the FunSoft package: Cost $$200,000$ for software and $$85,000$ for hardware in year one; with $$50,000$ to customize it and a $$40,000$ annual licensing fee for the life of the contract. There will be an annual savings of $$61,000$ due to the layoff of a clerk. $(5$ marks$)$

Option $2$: Purchase the SoftComm package, which will operate on the vendor$$s hardware: Cost $$250,000$ for a five$-$year license, payable half up front and half during the first year of implemen$-$ tation. The maintenance contract, at $$75,000$ a year, includes all currently identified modifications to the software for the first three years. The clerk$$s hours will be cut by half, for a saving of $$25,000$ a year. $(5$ marks$)$

In both cases, sales are expected to increase from the current $$1$ million a year, by $10\%$ per year each year $($over each year$$s previous year$$s sales$)$ after full implementation. An interest rate of$6\%$ was used. Assume a five$-$year life for the software.