1. Project Evaluation Identify accurate measures of benefits and costs in monetary terms and uses ration benefits/costs Consider a proposed ERP implementation involving a study in year 1 conducted by a team, aided by a consultant At this stage the expected costs are underestimated Includes BPR study and formation of training team Assumes a purchase of $3mn software from a vendor Int training team to double the payroll cost during year 2 Extra HW in second year Year 3 internal team with consultant will finish impl. An extra budget of $500,000 is allowed for extra HW Training team would grow after the first year The operations cost of the system budgeted $2mn in Yr 4, growing at the rate of 10% pa thereafter

2. ERP Implementation – Cost of capital is 20% – Majority : Benefits expectations: $4mn in Yr 4 and to last for 7 Yrs – Benefits would grow 30% per year – Conservative estimates: Benefits to be lower after Yr 4, grow by 10% instead of 30% – The firm wants to treat first 3 yrs expenses as investment

3. Project Evaluation- Cost Benefit year Internal team Consultan tsSoftwarehardwareTrainingBenefit Total Costs 1500,000 200,00001,200,000 21,000,000 3,000,0002,000,000500,00007,500,000 31,500,0001,000,000 500,0002,000,00005,000,000 42,000,000 1,000,0004,000,0003,000,000 52,200,000 300,0005,200,0002,500,000 62,420,000 6,760,0002,420,000 72,662,000 8,788,0002,662,000 82,928,200 11,424,4002,928,200 93,221,020 14,851,7203,221,020 103,543,122 19,307,2363,543,122

4. ERP Implementation Analyze the cost-Benefit sheet and give your comments What would be NPV of the project proposal using both the expected rates of benefit growth as shown in the excel sheet ???? And your comments/observation ? How much would be the IRR in both the cases ? How much would be the payback period in both cases?