26 Jun MSFS 670 Capital Budgeting Analysis Vendor 1: Suite Solution –
Question
MSFS 670 Capital Budgeting Analysis
Vendor 1: Suite Solution – System would be Owned by Ramsey
ERP Cost Components
Software
Software Maintenance (including updates)
Hardware
Consulting and Training
Implementation Team
$250,000
$62,500
$100,000
$160,000
$75,000
initial investment
annual recurring
initial investment
initial investment
recurring – see note
includes inventory and demand planning, 100 licenses
25% of software purchase price, begins in year 2
2 servers and communications infrastructure
full implementation and training
Beginning year 0 through year 5
$1,599
$9,900
$3,162
$140,000
$75,000
monthly recurring
monthly recurring
monthly recurring
initial investment
recurring – see note
includes inventory and demand planning
100 licenses, plus admin bases
27.5% of monthly billing
full implementation and training
Drops to $45k in year 1-5
Vendor 2: NetSuite – System would be Hosted in Cloud by NetSuite
Mid Market Wholesale/distribution version – Hosted Suite
100 Users @ $99 per user per month
Gold level maintenance
Consulting and Training
Implementation Team
The benefits of the ERP project begin when the system is put into operation. After the initial investment, the following benefits are expected annually over
a 5 year period: reduced inventory costs of $215,000, and reduced administrative costs of $105,000. Software and hardware are depreciated straight line
over 3 and 5 years, respectively, with no salvage values. Recurring expenses include the software maintenance and implementation team costs, the
latter of which reduce to $45,000 annually after year 0 and reflect ongoing team oversight of the ERP. The company’s cost of capital is 10%. The
company’s required rate of return is 12%. The tax rate is 35%.
Note: Assume current capital and operating lease rules apply.
ASSIGNMENT:
You are working on the cost justification:
a. Perform a capital budgeting analysis using 3 methods of measuring return on the project. One method must employ net present value analysis. The
other two methods should include methods that consider the time value of money. Upon completing the analysis, your report should include a short
explanation of each analysis, comments as to whether the methods support each other, a description of some of the intangibles benefits, not captured in
the calculations, and your conclusion regarding the capital budgeting decision for each vendor.
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