(20 Pts.) 3. A medium sized municipality wants to develop an intelligent softwar

Question

(20 Pts.) 3. A medium sized municipality wants to develop an intelligent software system to assist in project selection during the next 10 years. A life-cycle cost approach has been selected to categorize costs into development, programming, operating, and support costs for each alternative. There are three alternatives under consideration identified as A (tailored system), B (adapted system), and C (current system). The costs are summarized below. Using a present worth analysis and an interest rate of 10% per year, select the best alternative. Cost Component Alternative Cost $100,000 now, $150,000 year 1 $45,000 now, $35,000 year 1 $50,000 in years 1 through 10 $30,000 in years 1 through 10 $10,000 novw 45,000 year 0,$30,000 year 1 80,000 in years 1 through 10 $40,000 in years I through 10 150,000 is years 1 through 10 Support Operation Support Operation

Explanation / Answer

Since the Networth of the total cost is lowest i.e. $804,747.19 in case of of A (Tailored System) as compare to other two system So System A should be selected A (Tailored System) Year Development Programming Operation Support Total Cost Disc. Factor 1/(1+.1)^n P.V. 0          1,00,000      45,000    1,45,000    1.00000    1,45,000.00 1          1,50,000      35,000       50,000      30,000    2,65,000 0.909091    2,40,909.09 2       50,000      30,000       80,000 0.826446       66,115.70 3       50,000      30,000       80,000 0.751315       60,105.18 4       50,000      30,000       80,000 0.683013       54,641.08 5       50,000      30,000       80,000 0.620921       49,673.71 6       50,000      30,000       80,000 0.564474       45,157.91 7       50,000      30,000       80,000 0.513158       41,052.65 8       50,000      30,000       80,000 0.466507       37,320.59 9       50,000      30,000       80,000 0.424098       33,927.81 10       50,000      30,000       80,000 0.385543       30,843.46 Net Worth of the Total Cost    8,04,747.19 B (Adapted System) Year Development Programming Operation Support Total Cost Disc. Factor 1/(1+.1)^n P.V. 0             10,000      45,000       55,000    1.00000       55,000.00 1      30,000       80,000      40,000    1,50,000 0.909091    1,36,363.64 2       80,000      40,000    1,20,000 0.826446       99,173.55 3       80,000      40,000    1,20,000 0.751315       90,157.78 4       80,000      40,000    1,20,000 0.683013       81,961.61 5       80,000      40,000    1,20,000 0.620921       74,510.56 6       80,000      40,000    1,20,000 0.564474       67,736.87 7       80,000      40,000    1,20,000 0.513158       61,578.97 8       80,000      40,000    1,20,000 0.466507       55,980.89 9       80,000      40,000    1,20,000 0.424098       50,891.71 10       80,000      40,000    1,20,000 0.385543       46,265.19 Net Worth of the Total Cost    8,19,620.78 B (Current System) Year Development Programming Operation Support Total Cost Disc. Factor 1/(1+.1)^n P.V. 0                       -                  -                   -      1.00000                       -   1                -      1,50,000                -      1,50,000 0.909091    1,36,363.64 2    1,50,000                -      1,50,000 0.826446    1,23,966.94 3    1,50,000                -      1,50,000 0.751315    1,12,697.22 4    1,50,000                -      1,50,000 0.683013    1,02,452.02 5    1,50,000                -      1,50,000 0.620921       93,138.20 6    1,50,000                -      1,50,000 0.564474       84,671.09 7    1,50,000                -      1,50,000 0.513158       76,973.72 8    1,50,000                -      1,50,000 0.466507       69,976.11 9    1,50,000                -      1,50,000 0.424098       63,614.64 10    1,50,000                -      1,50,000 0.385543       57,831.49 Net Worth of the Total Cost    9,21,685.07

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