A mobile phone company identified a project to develop a new information system

Price: $5 USD

Question description

A mobile phone company identified a project to develop a new information system for its call center.

The project is estimated to cost $946,000. There will also be a net increase of $80,000 per year in ongoing operations and support costs.

The annual benefits are described as:

Reduce customer defections by 1,750 per year. Each defection is estimated to cost the company $500.
Reduce service call costs by 20% from $1.2 million per year to $960,000 per year.
Eliminate call-backs to customers because of failed service calls. In an average year, the number of call-backs has been 1.5 million per year with a cost of $0.46 per call-back.
The discount rate set by management is 8%. The discount rate is the minimum return the organization would expect from a project if the organization were to make an equivalent investment in an opportunity of similar risk.
What is the net present value (NPV) for this project after 3 years of operation? Support your answer.
Would you invest in this project? Explain fully.

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