The financial situation of the company has changed substantially since we first analyzed the proposal;your manager wants you to make changes to the previous Excel spreadsheet. A more conservative analysis should include the following changes:
1. Assume that the engineer/supervisor who will be administering the system will have to devote 50% of his/her time the 1st year, 40% the 2nd year, 30% the 3rd year, and 20% the 4th and 5thyears of the analysis. Hint: It is customary in business to allocate to the project the portion of a resource's cost/salary in direct relationship to the % of time the resource devotes to it.
2. Assume that the anticipated sales increase will be only $200,000 the 1st year, $300,000 the 2nd year, and $400,000 the remaining 3 years of the study.
3. Assume the gross profit rate will only be 20% throughout the study.
4. If the resulting new Net Present Value (NPV) is negative, your manager wants you to renegotiate the initial cost of the software to an amount which will bring NPV to zero (0) for the project.
5. What should the new cost of the software be, if you want the NPV of the project to be Zero?