Piedmont Trailer Case - Economic Feasibility Study

Matt Dean - Decision Support Evangelist August 24, 2006 This workbook tracks the benefits and costs associated with Piedmont's new customer order tracking system. Worksheet Documentation EFS 1XCosts RecurringCosts RecurringBenefits AnswersToISQuestions IS#1 IS#2

Piedmont Trailer Case - Economic Feasibility Study

Decision Support Evangelist

ok tracks the benefits and costs associated with Piedmont's new customer order tracking system. Description Documents the workbook. Summarizes the economic feasibility for this project. Identifies the one-time costs and their approximate dollar values. Identifies the recurring costs and their approximate dollar values. Identifies the recurring benefits and their approximate dollar values. Answers to the Information Specifications questions on pages 10 and 11. Analysis of different discount rates. Identifies when the project will break even with discount rate of 14%.

Piedmont Trailer Manufacturing Company

Custom Order Tracking Project Recurring Benefits
August 24, 2006
Discount Rate 0 Benefits Recurring Value of Benefits Present Value Factor (PVF) Present Value of Benefits Net Present Value of All Benefits Costs One-Time Costs Recurring Costs Present Value Factor Present Value of the Recurring Costs Net Present Value of All Costs Overall Net Present Value Cash Flow Analysis Yearly NPV Cash Flow Overall NPV Cash Flow IRR: 0.14 1 2 Year 3

0 $ 434,000.00 $ 434,000.00 $ 434,000.00 1.000000 0.877193 0.769468 0.674972 $ 380,701.75 $ 333,948.91 $ 292,937.64 $ 380,701.75 $ 714,650.66 $ 1,007,588.30

$ (370,703.00) $ (318,000.00) $ (318,000.00) $ (318,000.00) 0.877193 0.769468 0.674972 $ (278,947.37) $ (244,690.67) $ (214,640.94) $ (370,703.00) $ (649,650.37) $ (894,341.04) $ (1,108,981.98) 1.000000

$ (370,703.00) $ 101,754.39 $ 89,258.23 $ $ (370,703.00) $ (268,948.61) $ (179,690.38) $ $ (370,703.00) $ 116,000.00 $ 116,000.00 $

78,296.70 (101,393.68) 116,000.00

ng Company

roject

Year 4 $ 5 Totals

434,000.00 $ 434,000.00 0.592080 0.519369 $ 256,962.84 $ 225,406.00 $ 1,264,551.14 $ 1,489,957.14 $ 1,489,957.14

(318,000.00) $ (318,000.00) 0.592080 0.519369 $ (188,281.53) $ (165,159.24) $ (1,297,263.51) $ (1,462,422.75) $ (1,462,422.75) $ 27,534.39

$ $ $

68,681.31 $ (32,712.37) $ 116,000.00 $

60,246.77 27,534.39 116,000.00 17.049417%

Piedmont Trailer Manufacturing Company

Custom Order Tracking Project One-Time Costs
August 24, 2006
Cost Development Personnel Training Project-Related Technology Purchases Site Preparation Misc Conference-Related Supplies Duplication Total One-Time Costs $ $ $ $ $ $ $ $ Approximate Dollar Value (142,000.00) (45,000.00) (65,000.00) (105,250.00) (7,500.00) (2,704.00) (3,249.00) (370,703.00)

Piedmont Trailer Manufacturing Company

Custom Order Tracking Project Recurring Costs
August 24, 2006
Cost Software Maintenance Hardware Supplies IT Positions (3 people) Site Rental Total Recurring Costs $ $ $ $ $ $ Approximate Dollar Value (55,000.00) (30,000.00) (35,000.00) (160,000.00) (38,000.00) (318,000.00)

Piedmont Trailer Manufacturing Company

Custom Order Tracking Project Recurring Benefits
August 24, 2006
Benefit Storage Savings Staff Reduction Reduced Order Rework Increased Sales Faster Order Processing Better Data Management Streamline Activities Total Recurring Benefits $ $ $ $ $ $ $ $ Approximate Dollar Value 30,000.00 45,000.00 14,000.00 100,000.00 40,000.00 125,000.00 80,000.00 434,000.00

Question IS#1 IS#2 IS#3 IS#4 IS#5

IS#6

Answer See sheet IS#1. See sheet IS#2. What do you think? I also asked this question on sheet IS#2. Change cell B7 in worksheet RecurringBenefits to =45000+32500 and see how it affects EFS sheet and IS#2 sheet. Keep changes from IS#4 and change cell B9 in worksheet 1XCosts to -120000 and see how it affects EFS and IS#2 sheets. First, which one of the "scenarios" are we trying tompare to the other projects? Should we only look IRR to make the decision? If not, what other factors should we consider? If IRR is enough, justify your answer.

nd IS#2 sheet. EFS and IS#2 sheets.

Piedmont Trailer Manufacturing Company

Custom Order Tracking Project Discount Rate Analysis
August 24, 2006
Discount Rate 0.08 0.10 0.12 0.14 0.16 Project's Feasibility? $ 92,451.36 $ 69,028.27 $ 47,451.04 $ 27,534.39 $ 9,115.06

What happens as the discount rate increases? Is this intuitive? Why or why not? At what discount rate should we break even? Why?

Piedmont Trailer Manufacturing Company

Custom Order Tracking Project Break Even Analysis
August 24, 2006
Years 0 Net Present Value of All Benefits Net Present Value of All Costs $ $ 370,703.00 1 $ 380,701.75 $ 649,650.37 2 $ 714,650.66 $ 894,341.04 3 $ 1,007,588.30 $ 1,108,981.98

Break Even Analysis

$1,600,000.00 $1,400,000.00 $1,200,000.00 $1,000,000.00 $800,000.00 $600,000.00 $400,000.00 $200,000.00 $0 1 2 Year 3 4

Company

s 4 $ 1,264,551.14 $ 1,297,263.51 5 $ 1,489,957.14 $ 1,462,422.75

NPV of All Benefits NPV of All Costs