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(a) Bumble Bank set up its new banking
software costing $2.5 million dollars it
also revamped all its computer hardware and upgraded its network to
commission the new system. The additional hardware cost a further
$500,000.
All file conversion from the existing system was done by SWIFT Corporation
costing another $200,000. The bank also hired more IT staff for the
operation
of the system. The total IT staff payroll came up to $450,000 annually.
It is
assumed that the bank will use the software for another 10 years.
(i) What are the three main categories of cost for a system? [3]
Three types of cost
- Investment Cost [1]
- Implementation Cost [1]
- Annual Operating Cost [1]
(ii) Determine the various categories of cost for this system. [3]
- Investment Cost = $2.5M + $500,000 = $3M
[1]
- Implementation Cost = $200,000 [1]
- Annual Cost = $450,000 [1]
(iii) Calculate the annual cost for this system. [3
Annual Cost = $450,000 + ($3,000,000 + $200,000)/10 [1] = $770,000
[2] (b) Calculate the Payback period for the following project. Assume
the total
(b) Calculate the Payback period for the following project. Assume
the total
investment is $50,000
.Assume a corporate tax of 25%, and a total investment of $50,000.
[3]
P = $50,000 / [(1 - 0.25)($12,500)] [1]
= 5.3 Years [2]
(c) Analyze the following proposal and base on the calculation of
Marginal
Efficiency of Investment and give your conclusion if the investment
is feasible. [3]
Assume Fixed
Investment of $27,000 and a prime rate of 9%.
27,000 = 20500/[(1 + r)^1] + 15,000/[(1 + r)^2] [1]
Working and correct answers constitutes [1]
r = 14.78%
By comparing it against the prevailing prime rate 9% this proposal
is a
viable investment. [1]
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