CIS 635 Homework

CIS 635 Homework - cost driver ratings will change as...

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CIS 635 Homework #4 Spring 2009 Business Case Analysis eServices, Inc. is the company chosen to develop Sierra Mountainbike's supply chain management system. They are considering whether to invest further corporate resources in developing a product line architecture and set of reusable components for future customers in the specialty manufacturing area. They have three potential customers, whose probabilities and expected dates of employing eServices Inc. are Leisure Motorboats ( p=0.7; 2007 - 2008); U.S. Scuba (p=0.5, 2008-2009); and RacerBikes, Inc. (p=0.3, 2008-2009). Their baseline cost of developing the Sierra Mountainbike's software will be $2500k in 2006 and $1500k in 2007. This will be paid for by Sierra. If they do not develop a product-line architecture and reusable components, each application will cost them the baseline costs of $2500k in the first year and $1500k in the second year. If they develop a product-line architecture and reusable components, their COCOMO II
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Unformatted text preview: cost driver ratings will change as follows: RUSE : Nominal to Very High RELY: High to Very High DOCU: Nominal to High But it will enable them to reduce their development cost to 70% of their baseline cost in 2007 and 30% of their baseline cost in 2008 and 2009. Use the COCOMO II multipliers to determine their added investment costs to develop reusable product-line software in 2006 and 2007. Use the probability and dates of the potential future customers, and the cost savings by year for reusing the product-line software to determine their expected cost savings in current dollars in 2006, 2007, 2008, and 2009. Use an interest rate of 9% per year to computer the present value in 2006 dollars of their investment costs and benefit in cost savings from 2006 to 2009. Compute the resulting present expected value return on investment by year from 2006 to 2009, and show the results in a graph of ROI vs. Year....
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