For the AutoLube’s proposed order processing system, the systems analyst who did the systems analysis provided the following estimates for costs and benefits accruing from the system (the expected life of the system – 7 years):
Total Development Costs= $116400
Total Projected Annual Costs= $15825 *increases 5% every year over the life of the system
Estimated benefits
Year 0 = $0, Year 1 = $50,000, Year 2 = $55,000, Year 3 = $60,000, Year 4 = $65,000, Year 5 = $70,000, Year 6 = $75,000, Year 7 = $80,000
For Jack Black, the opportunity cost of capital is 7% per annum. That is, this is the return he is currently earning on his other investments. Given the above information, please do the following:
1. Create Excel spreadsheet to estimate the annual cash flows for the expected life of the system
2. Estimate the NPV of the costs and benefits
3. Estimate the Lifetime ROI and the annual ROI for the project
4. Estimate the payback period for this project investment.