| 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% | ||||
| Discunted Cash Flow |
| Discounted Cash Flow is a valuation model that is used in order to calculate approximately the attractiveness of any kind of investment opportunity. The discounted cash flow assesses the future projections of the cash flow and thereafter discounts them by making use of a required annual rate and to arrive at the present value estimates (Wu et al., 2016). A present value estimate is then utilised to assess the potentiality for any kind of investment. If the value that is attained with the help of discounted cash flow analysis is greater than the present cost of the investment, the opportunity can be an effective one. |
| The process of discounted cash flow assessment is a process of valuing any projects, organizations and the assets by making use of the concepts that us related to the time value of money (Chen, & Teng 2015). All the future cash flows are projected and the thereafter discounted by making use of the cost of capital in order to give their present value. The sum amount of all the cash flows that are incoming and outgoing is known as the net present value, which is considered as the value of the cash flow that has been taken into consideration. |
| The utilisation of DCF assessment is to construct the net present value which takes into account the input cash flows and the rate of discount and provides the output as the present value, and in the reverse process, it takes into account the cash flows and a price as the inputs and gives out the output that is known as the discount rate and this is generally used in the bond market in order to gain the yield (Lefley, 2015). |
| In accordance to this current case study it is seen that the company has been facing negative discounted cash flow as the costs have been facing downwards and thereby explaining that the company has not been functioning in an effective manner and has been facing losses in the current time period and even in the future years to come. |
| Payback Period |
| Payback period in the process of capital budgeting explains the period of time that is essential to recoup the funds expended within an investment or to attain the breakeven point. The time value of money is not considered in this process. The payback period instinctively computes the tenure it takes “to pay for itself”. It is known that the shorter level of payback period are effective in accordance to the longer payback period and it is seen that payback period is accepted because of their ease of use in spite of the identified disadvantages (Leyman, & Vanhoucke 2016). |
| With regards to the concerned company, it is seen that the company has not been performing effectively and therefore cumulative cash flow has declined and payback period has been high as the company has not been able to pay for itself, which indicates that the company has not been functioning in a proper manner. The negative discounted cash flow is an indication of the company’s current financial condition and thus the payback period has been higher and falling as well. |
| Net Present Value |
| In the terms of accounting and finance, net present value is a process or measurement of profit that is calculated by deducting the present cash outflow values from the present cash inflow value over a certain time frame. The outgoing or the incoming cash flows can be explained as the cost and the benefit cash flows (Veldman, & Verzijlbergh 2015). The net present value is ascertained by computing the costs and the advantages and the benefits of every individual period of any kind of investment. The time period is for a year but it can be computed half yearly, quarterly and even in months. After the computation of the cash flow for every period, the net present value for every period is attained by discounting the future value at a rate of return that is periodic in nature (Benamraoui et al., 2017). |
| The current status of the company and the net present value that has been gained is seen to be negative. The figures being negative explains that the company has been facing losses and has been unable to take measures with the help of which they can improve their current liquidity scenario and therefore, it is essential for the company to take adequate measures and steps with the help of which the company would be able to improve their current financial scenario and thereafter can attain competitive edge. The graphs that have been constructed therefore explains that the company has not been performing effectively and the future financial position of the company would remain the same if the management does not take adequate measure to improve the condition. |
| Recommendation |
| The result indicates that the company has not been performing in an effective manner and therefore it is recommended that the organization takes additional measures like assessing the operational activities of the company with the help of which they can identify the faults that are existent within the operations and take additional measures in order to mitigate the problems and the issues. The management of the organization needs to take actions like changing their plans and policies so that there can be changes in the functional activities with the help of which the the company would be able to change their losses into profits and accordingly create a positive discounted cash flow, lower the payback period and the improve the net present value for the organization. |
| Reference List |
| 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. |
| Chen, S. C., & Teng, J. T. (2015). Inventory and credit decisions for time-varying deteriorating items with up-stream and down-stream trade credit financing by discounted cash flow analysis. European Journal of Operational Research, 243(2), 566-575. |
| Lefley, F. (2015). The FAP Model—The Net Present Value Profile (NPVP). In The FAP Model and Its Application in the Appraisal of ICT Projects (pp. 100-112). Palgrave Macmillan, London. |
| Leyman, P., & Vanhoucke, M. (2016). Payment models and net present value optimization for resource-constrained project scheduling. Computers & Industrial Engineering, 91, 139-153. |
| Veldman, E., & Verzijlbergh, R. A. (2015). Distribution grid impacts of smart electric vehicle charging from different perspectives. IEEE Transactions on Smart Grid, 6(1), 333-342. |
| Benamraoui, A., Jory, S. R., Boojihawon, D. R., & Madichie, N. O. (2017). Net Present Value Analysis and the Wealth Creation Process: A Case Illustration. The Accounting Educators’ Journal, 26. |
| Bibliography |
| Götze, U., Northcott, D., & Schuster, P. (2015). Investment appraisal: methods and models. Springer. |
| Lee, I., & Lee, K. (2015). The Internet of Things (IoT): Applications, investments, and challenges for enterprises. Business Horizons, 58(4), 431-440. |
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