QUESTION THREE

Kapinga is working to develop a preliminary cost$$benefit analysis for a new client$-$server system. He has

identified a number of cost factors and values for the new system, summarized as follows:

Development Costs$-$Labour

$2$ Systems Analysts $50$ days @ TZS $50,000/=/$day

$3$ Programmers $40$ days @TZS $50,000/=/$day

Development Costs$$New Hardware and Software

$1$ Development server with all key software installed TZS $22,000,000/=$

$7$ DBMS client software TZS $950,000/=/$client

Annual Operating Costs

$2$ Programmers $10$ days @TZS $50,000/=/$day

$1$ Maintenance agreement for server and client TZS $2,000,000/=$

The benefits of the new system are expected to come from two sources: increased sales and lower inventory

levels. Sales are expected to increase by TZS $25,000,000/=$ in the first year of the system$$s operation and

will grow at a rate of $10\%$ each year thereafter. Savings from lower inventory levels are expected to be TZS

$12,000,000/=$ per year for each year of the project$$s life.

Required

Assuming a three$-$year lifecycle of the project is developed at an interest rate of $15\%.$

$($a$)$ What is the ROI for this project?

$($b$)$ What is the payback period?

$($c$)$ What is the NPV for this project?

$($d$)$ Should this project be accepted by the management approval committee? Why?