Question

Perform a cost-benefit analysis using the following data:

Direct Costs

• Ten laptops—$2,000/each

• A server—$2,000 •

Network installation—$15,000 •

Software—$20,000

Indirect Costs

• Training—$15,000

Annualized Benefits

• Increased capacity—$100,000

Answer 1

Total Direct Cost = ( 10 x 2000) + 2000 + 15000 + 20000 = $ 57000

Total Indirect Cost = $ 15000

Total Cost = Total Direct Cost + Total Indirect Cost = 57000 + 15000 = $ 72,000

Annualized Benefit = $ 100,000

Payback Period( in years) = Total Cost / Annualized Benefit = 72,000 / 100,000 = 0.72 years

Payback Period (in days) = 0.72 x 365 = 262.8 = 263 days (Rounding off)

Therefore, the payback period is less than a year.

The total cost is less than the Annualized benefit resulting in a payback period of less than a year, hence it is a good cost-benefit scenario.