Assuming that inflation is expected to remain constant at 6% over the next five years of the project, create a five-year economic feasibility report by year

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Homework Assignment 1: Due on September 22, 2011
Submit the assignment online on Blackboard using Assignments>Homework Assignment 1 option.
No hard copy submissions will be accepted. All assignments must be submitted before the class on
the day when the assignment is due i.e. by 6 PM. Late submissions will not get any credit. Submit
only MS-Word files (no PDF files). Please note this is an individual assignment and not a group
assignment. You have to do it on your own and no consulting or collaboration with your peers or
anyone else is allowed except using Internet resources to do research for the assignment.
Q1. A major company wishes to implement a system to support their Service Awards Program. In
this program, employees are given gifts and awards based on the number of years of service that they
have given the company. This system is an expansion of an existing paper-based system that
currently has much inefficiency. It is the hope of the company president that a new system will
provide them with economies of scale and reduced operating costs that will outweigh the costs of
designing and building the system. You have been asked to complete an economic feasibility analysis
for this project.
The IT department will manage the project, which is expected to take 14 weeks for requirements
analysis and design, 5 weeks for construction and 3 weeks for implementation. The average
expenditure per week for each of these tasks is shown in the table below.
Task Average Cost per Week
Analysis and Design $3,200
Construction $2,300
Implementation $1,850
The system is expected to reduce the HR staffing requirements by 75% starting next year. HR
reports that the average annual salary per full time employee (FTE) is currently $75K. These savings
will continue for next five years. In addition, there are expected savings resulting in better inventory
management of awards and reduced handling costs charged by suppliers starting one year from now.
These savings amount to $1,400 per month for inventory management and $2,800 per year for
handling costs. However, the IT department expects to increase the cost of operations from next
year by $825 per month and general maintenance, which includes electricity, is expected to start at
$145 per month in the next year, rise to $185 per month in the following year and to $215 per
month for the next three years. The new system will require the initial expenditure of $87,500 for
new equipment.
Assuming that inflation is expected to remain constant at 6% over the next five years of the project,
create a five-year economic feasibility report by year. Include the following in your report:
1. Prepare a table that indicates year by year computations for benefits and costs including the
initial costs in the form as shown below:
Details Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Economic Benefits
HR Benefits
Inventory related
Handling costs related
Total economic benefits
Initial costs
Recurring costs
General maintenance
Total recurring costs
2. Compute Net Present Value, Annual Accounting Return on Investment, and Pay Back
Period for this project. You need to show all calculations to get full credit for this question.
Use the Excel format that we used in the class for practice exercises and homework
3. Based on the values of these three financial indicators, justify whether this project is
economically feasible.
Q2. You work for Scrooge and Marley Systems Developers, Inc. You have been given the task of
preparing a Network chart for a new project to commence October 02, 2011. You are to ignore
holidays (company policy). The table below shows the tasks, durations, and dependencies required
for the project.
Task Depend
A Gather requirements None 3
B Design screens A 1
C Translate old physical
design to old logical design
A 0.5
D Design new logical C 3
E Code screens B 1
F Inventory legacy equipment B 1
G Design new physical D,E,F 1
H Build system F 4
I Acquire new equipment F 2
J Implement system H,I 1
Draw a PERT chart for the following tasks. The expected durations have already been calculated for
you. You have to show all calculations. Simply writing the value will not get you full credit.
a. Identify the critical path for the project. You have to identify it by listing all possible paths.
You are not expected to use MS-Project to identify the critical path.
b. Compute when the project will be completed (in weeks).
c. Compute Early Start and Late Start for each activity. Compute the slack for each activity.
Show all calculations.
d. If we increase the duration of activity E to 3 weeks from the current 1 week and increase the
duration of activity H to 7 weeks instead of 4 weeks, compute how much the project will be
Finally fill in the answers for part c in the last three columns of the above table. You still need to
show the calculations for part c separately