Feasibility Study And Cost Estimates For An Inventory And Sales Database Management System

TASK	A	M	B
Requirements	20	30	39
Prod. Specifications	60	78	117
Design & Implementation
A	68	135	270
B	135	225	451
C	176	351	702
Integration Test	35	105	158
System Test	18	70	176
Reviews
PDR	9	18	35
CDR	9	18	35
Manuals
User	53	70	140
IMS	53	70	140
Delivery Package	4	4	9
Sub-Total	638	1174	2271
Project Management	159	294	568
TOTAL
Standard Deviation
Upper Limit of 90% Probability Range
Lower Limit of 90% Probability Range
Computation	Expected Time (Person Years)
Expected Range	14.3
Upper Limit	16.0
Lower Limit	12.5
Rate Tiers
Units	Low	Medium	High
Architect/Designer	32	48	79
Developer	24	32	48
Testing Lead	32	48	79
Tester	24	32	48
Technical Writing Cost	24	48	79
Manager	40	63	111
On-site Manager	95	158	238
Cost Units
Units	per hour	per days
Architect/Designer	79	634
Developer	32	253
Testing Lead	32	254
Tester	48	380
Technical Writing Cost	48	380
Manager	40	317
On-site Manager	238	1902
TOTAL		4120
COSTS for IN-HOUSE DEVELOPMENT:-
	Fiscal Year
COST ITEMS	2018	2019	2020	2021	2022
Hardware	$3,76,826	$3,48,564	$3,48,564
Software			$2,78,851	$2,09,138	$2,09,138
Project Team Salary			$3,76,826	$3,20,302	$2,72,257
Telecommunications			$4,18,277	$4,49,648	$4,94,612
Training			$2,09,138	$2,09,138	$2,09,138
Operations & Contingencies	$4,18,277	$4,18,277	$4,18,277
Project Total Cost by Year	$7,95,103	$7,66,841	$20,49,933	$11,88,226	$11,85,146
PROJECT TOTAL COST	$59,85,248
BENEFITS of IN-HOUSE DEVELOPMENT:-
	Fiscal Year
BENEFIT SOURCES	2018	2019	2020	2021	2022
Cost Reduction (Courier & Returned Goods)			$6,97,128	$7,31,984	$7,66,841
Enhanced Revenues			$3,48,564	$4,87,990	$6,83,185.38
Decreased Employee Overtime				$1,39,426	$1,39,426
Decreased Overhead			$69,713	$69,713	$69,713
Total Benefits Per Year	$0	$0	$11,15,405	$14,29,112	$16,59,165
Confidence Factor	99.7%	99.7%	99.7%	99.7%	99.7%
Benefits Claim for Analysis	$0	$0	$11,12,058	$14,24,825	$16,54,187
PROJECT GRAND TOTAL BENEFIT	$41,91,070
COST BENEFIT ANALYSIS (IN-HOUSE) :-
	Fiscal year
	2018	2019	2020	2021	2022
UNDISCOUNTED CASH FLOWS
Costs	$7,95,103	$7,66,841	$20,49,933	$11,88,226	$11,85,146
Benefits	$0	$0	$11,12,058	$14,24,825	$16,54,187
Net Cash Flows	-$7,95,103	-$7,66,841	-$9,37,874	$2,36,599	$4,69,041
DISCOUNT FACTOR
Discount Rate	8.00%
Base Year	2018
Year Index	0	1	2	3	4
Discount Factor	1.000	0.9259	0.8573	0.7938	0.7350
Discounted Flows
Costs	-$7,95,103	-$7,10,038	-$17,57,487	-$9,43,252	-$8,71,118
Benefits	$0	$0	$9,53,411	$11,31,072	$12,15,877
Net	-$7,95,103	-$7,10,038	-$8,04,076	$1,87,820	$3,44,759
Cumulative Cash Flow	-$7,95,103	-$15,05,140	-$23,09,217	-$21,21,397	-$17,76,638
Net Present Value	-$17,76,637.66
Internal Rate of Return	-40%

Discounted Cash Flow Model

The model of discounted cash flow refers to a technique or a process that is exploited in order to discover actual value of a business firm in accordance to the cash that is generated and the cash that would be created in the coming time period (Bekaert et al., 2016). This model is utilized in a routine process by the companies and the individuals who are buying the business. The method is dependent on the cash flow as the cash flow for the future of any kind of business activities can be added up. It is called the discounted cash flow because of the fact that the commercial understanding of the fact that the money that is available in the purse in the current time period will not have the same value in some future course of time (Wu et al., 2016). Time frame is one of the essential elements of discounted cash flow and this element has to be used for the purpose of evaluation and gaining knowledge about the flow or the understanding of the direction of the cash that will occur every year in the organization, which is known to be an efficient process with the help of which one can predict and the other element comprises of the internal rate of return for a business or an entity, which is actually the money that is received in case an investment was initiated on a kind of product that is similar and has equivalent extent of risk associated with it (Korteweg, & Nagel 2016). The calculation of the discounted cash flow is easy and meek and the vitality of the cash flow value that one would be able to create.

The computation of the yearly cash, which is to be discounted has been explained as follows:

·         Compute the net income that is available after tax

·         Add up the depreciation for a year due to the information that the depreciation is not looked upon as an expenditure of cash.

·         Deduct the adjustments in the working capital from the previous year. This adjustment can be negative in certain circumstances and in this circumstances, the operations will be summed up with the cash. In the construction of an activity, the results will be positive and hence there will be a demand for cash.

·         Deduct the capital expenditure.

The approximations of the cash flow are repetitive for each and every year of the expected period. In order to attain an essential initiation number, the net income that is received after tax, the accountant requires to calculate the expenses and their sales by predicting better supportable growth rate for the operations, which is mostly dependent on the background of the organization that has been selected (Gorshkov et al., 2014).

By evaluating the functional activities of the firm, which is stated in this paper, it is seen that the firm has not been performing in a proper way and the expenses associated to the firm has been significant high in accordance to the revenue that is computed by the firm. The discounted cash flow is seen to be negative within the time period of 2018 and 2019 and in this time period no profit is attained by the firm. The future cash flows that is obtained for the year 2020, cost has been a bit higher than the revenue that is generated. However, in the year 2021 and 2022, there has been a fall in cost with regards to the profit that is accumulated by the company and thereby explaining that the firm will be having a projected cash flow that would be positive and this explains that the profit would be rising slowly and in this way the company would be able to enhance their financial scenario within the economy.

Payback Period

The method capital budgeting for a firm, it is observed that the payback period is the selection of the principles that various businesses utilize in order to select the capital developments. In the same manner, in the present time frame, the businesses find out that the selection standards of the payback period is the best and optimum (Kasprowicz, & Schulz 2015). The description of the payback period in order to undertake capital budgeting is found to be simple and easy. The payback period is looked upon to as the overall years that is demanded in order to payback the initial investments of a capital developments that is generated from the cash flows that is attained by the projects.

In accordance to the case study that is given in this paper and the graphs and figures that have been obtained addresses the fact that payback period for the company has been long because of the fact that the cumulative cash flow that is obtained is negative and furthermore, the cumulative cash flow has been declining and therefore explains that that the payback period will be increasingly high (Goyat, & Nain 2016). Furthermore, in the future years to come, the organization is able to raise their cumulative cash flow from the preceding time frame, even though the results indicate that the cash flow is still negative. The outcome has explained that the payback period is higher and hence the commencement of the assignment or the project is not advised.

Net Present Value

The Net Present Value (NPV) is referred to be the differentiation among the existing inflow cash value and the existing cash outflow with respect to a distinct period of time. The net present value is exploited in the capital budgeting mechanism in order to assess the degree of profit that can be attained from an investment or any kind of project (Santandrea et al., 2017). The net present value when is seen to be positive addresses the fact that the projected earnings and the revenues that is generated from a business is higher than the anticipated costs. The result that explains a net present value to be positive means that the company has been making profits and on the other hand, a company that is showing negative net present value indicates that the company has been making losses. Therefore, in accordance to this paper, the results have indicated that the net present value is negative for the company and therefore, it is not advisable to the investors to undertake investments in this company or project (Bora, 2015).

The results obtained from the discounted cash flow, payback period and net present value shows that all the results indicate negative values and therefore investments in this project is not suggested.

Reference List

Bekaert, G., Harvey, C. R., Lundblad, C. T., & Siegel, S. (2016). Political risk and international valuation. Journal of Corporate Finance, 37, 1-23.

Bora, B. (2015). Comparison between net present value and internal rate of return. International Journal of Research in Finance and Marketing, 5(12), 61-71.

Gorshkov, A. S., Rymkevich, P. P., Nemova, D. V., & Vatin, N. I. (2014). Method of calculating the payback period of investment for renovation of building facades. Stroitel’stvo Unikal’nyh Zdanij i Sooruzenij, (2), 82.

Goyat, S., & Nain, A. (2016). Methods of Evaluating Investment Proposals. International Journal of Engineering and Management Research (IJEMR), 6(5), 278-280.

Kasprowicz, R., & Schulz, C. (2015). Availability-based payback method for energy efficiency measures. Procedia CIRP, 29, 710-715.

Korteweg, A., & Nagel, S. (2016). Risk?Adjusting the Returns to Venture Capital. The Journal of Finance, 71(3), 1437-1470.

Santandrea, M., Sironi, A., Grassi, L., & Giorgino, M. (2017). Concentration risk and internal rate of return: Evidence from the infrastructure equity market. International Journal of Project Management, 35(3), 241-251.

Wu, J., Al-Khateeb, F. B., Teng, J. T., & Cárdenas-Barrón, L. E. (2016). Inventory models for deteriorating items with maximum lifetime under downstream partial trade credits to credit-risk customers by discounted cash-flow analysis. International Journal of Production Economics, 171, 105-115.