1. Cost/Benefit Analysis and Hurdle Rate Add: Service Staff $1,000,000 Managemen
ID: 458685 • Letter: 1
Question
1. Cost/Benefit Analysis and Hurdle Rate Add: Service Staff $1,000,000 Management and Administration $500,000 Technology - Employee Service Center $300,000 Technology - Web $250,000 Technology - HRIS/Payroll Core Application $500,000 Subtotal $2,550,000 Less: FTE removal through reengineering $4,500,000 Add: Incremental operating expenses $175,000 Net annual savings -$1,775,000 One Time Investments Web Technology $1,000,000 HRIS/Payroll upgrade $700,000 Internal project labor $650,000 External conversion and consulting expense $400,000 Total one-time investment of capital $2,750,000 a. Explain the net annual savings of $1,775,000. b. If management sets the hurdle rate at 2 years, will this project be approved based on time? The hurdle rate is the one time investment in capital divided by net annual savings.
Explanation / Answer
a. The net annual savings resulted from reengineering and calculated as FTE removal through reengineering minus Total expenditure on reengineering and incremental operating expenses.
b. Hurdle rate of this project = 2750,000/1775,000 = 1.55. Yes, the if the management sets the hurdle rate at two years, then this project will be approved, because, the hurdle rate of the this project at 1.55 is less than 2 years.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.