I'm really struggling with this case study question and where to start in terms of what information is important needed for calculations. I'm also unsure about what specific formulas to use for each question.
Case study:
In the year 2022, a retail company made a procurement plan for a new CRM system, that consists of three software components, namely C1 (Operational CRM component), C2 (Analytical CRM component) and C3 (e-CRM component). The three components are licensed independently according to the following standard:
Moreover, each CPU of the production environment costs £5,000. The cost of software license and CPUs are one-time payment (initial investment).
Starting from the second year (i.e., 2023), the company will pay the vendor of the CRM system an annual 20% maintenance fee over the software license fee. As a return, the CRM is projected to generate annual revenue of 200,000 from the second year (i.e., 2023) onwards.
Notes: There is no disaster site for this CRM system. There is no maintenance fee for Hardware (CPUs).
Let variable N denotes the number of Users, variable M denotes the number of CPUs
Q1) Calculate the annual net cash flows for this CRM system. The formulas should consider all costs and earnings on a yearly basis.
Q2) Suppose the total number of users is 500, please use the above formulas to calculate the net cash flows from the year 2022 to 2025,
Year Net Cash Flow
2022 (T = 0, current year)
2023 (T = 1)
2024 (T = 2)
2025 (T = 3)
Q3) Taking into account the time value of money, suppose the CRM will be used for three years’ time (towards the end of year 2025). The annual discount rate is 15%, and please calculate the net present value (NPV) for this CRM system, and briefly explain the meaning of your answer.
Case study:
In the year 2022, a retail company made a procurement plan for a new CRM system, that consists of three software components, namely C1 (Operational CRM component), C2 (Analytical CRM component) and C3 (e-CRM component). The three components are licensed independently according to the following standard:
- C1 is licensed on a per user basis, costing £50 per user that will have access to the package.
- C2 is licensed on a per user basis, costing £150 per user that will have access to the package.
C3 is licensed based on the number of CPUs that are installed on the application server that the CRM system will run. The software license cost for C3 is £10,000 per installed CPU. It is estimated that, in order to be able to perform adequately in the production environment, The CRM system requires 2 CPUs for up to 250 Users, 4 CPUs for 251 to 500 Users and 8 CPUs for 501 to 1000 Users.
Moreover, each CPU of the production environment costs £5,000. The cost of software license and CPUs are one-time payment (initial investment).
Starting from the second year (i.e., 2023), the company will pay the vendor of the CRM system an annual 20% maintenance fee over the software license fee. As a return, the CRM is projected to generate annual revenue of 200,000 from the second year (i.e., 2023) onwards.
Notes: There is no disaster site for this CRM system. There is no maintenance fee for Hardware (CPUs).
Let variable N denotes the number of Users, variable M denotes the number of CPUs
Q1) Calculate the annual net cash flows for this CRM system. The formulas should consider all costs and earnings on a yearly basis.
Q2) Suppose the total number of users is 500, please use the above formulas to calculate the net cash flows from the year 2022 to 2025,
Year Net Cash Flow
2022 (T = 0, current year)
2023 (T = 1)
2024 (T = 2)
2025 (T = 3)
Q3) Taking into account the time value of money, suppose the CRM will be used for three years’ time (towards the end of year 2025). The annual discount rate is 15%, and please calculate the net present value (NPV) for this CRM system, and briefly explain the meaning of your answer.
