Investment Assessment For A New Computer Essay

Length: 4 pages Subject: Business Type: Essay Paper: #56199880 Related Topics: Cost Benefit Analysis, Net Present Value, Value Creation, Computer Software
Excerpt from Essay :

Information Technology

Cost Benefit Analyses of a Computer Purchase

In today's commercial environment, it is necessary that small as well as large businesses are able to remain competitive. For every investment there will be an opportunity cost, so it is essential that potential investment are assessed to help with the maximization of value creation. One approach that is frequently used is the cost benefit approach. The cost benefit model measures the costs and the benefits, with the underlying principle that an investment or project should only proceed if the benefits are greater than the costs which will be incurred. If a small business is considering investing in a computer, a cost benefit analysis may help with the assessment to determine if the investment is likely to be beneficial. This will start with the assessment of the costs that will be incurred, and the potential benefits. In this case it is assumed that a business, such as an independent shop, is considering purchasing a computer in order to increase efficiency for counting and record-keeping, as well as facilitate an expansion strategy into e-commerce, allowing the business to sell online.

Costs

The computer selected as satiable for the small business is a Dell OptiPlex mini tower. It is essential that all requirements are considered and not just the cost of the core computer. Taking the figures from the Dell website to following items are assessed as required. The computer is a starting point, but it is also an essay to look at the additional hardware, software and support will be needed. For example, for a

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As the business will rely on a computer, it is also advisable to ensure there is sufficient technical support, with a service agreement. The costs include an extended warranty for both the computer and printer, and accident insurance so that next a replacement can be made. The software included is Microsoft Office, as well as a three-year Dell data protection and encryption license.

Table 1; Initial Costs

OptiPlex 3020 Tower

$529.00

20-inch monitor

$119.99

Speaker

$20.30

3-year technical support/warranty $91.30

Accident insurance

$34.30

Printer with 3-year warranty

$319.99

Microsoft Office

$195.30

Dell data protection and encryption (3-year license)

$72.80

Installation

$69.30

Total

$1,452.28

Benefits

The next stage is to consider the benefits that will emerge as a result of the investment. The benefits will not be immediate, puts out over a period of time. In this assessment it is assumed that the computer will have a life of three years, after which it will need to be replaced. Therefore, the cost benefit analysis will be based on a three-year period. As the benefits are accumulated over three years, the initial assessment will be based on the annual benefits that will be felt.

There are several potential sources benefit; the first the ability of the firm to undertake an e-commerce strategy. This will increase sales. The development of forecasts will take into account the way in which the sales will be low in the first year and grow, The benefit from the online sales is the…

Sources Used in Documents:

This shows that there is still a positive outcome; the benefits are greater than the costs. However, the benefits are not as great as the first calculation due to the time cost of money. It is also important to remember that this net present value is speculative as it is making the assumption of a 5% inflation rate or cost of capital. This can change, and as such there is also the ability to apply a higher level to ensure that there would remain a positive value.

Overall, it would appear that, as long as the increased profit projections are correct, that this would be a wise investment and produce benefits that are far greater than the costs.

The type of business may be changed to suit the students needs www.dell.com, correct on the 12th Jan 2015


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