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Software Project Decision Point Essay and Calculation

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Return on Investments (ROI) Analysis

Option 1 bears the following costs -$200,000 – $85,000 – $50,000 – 5*$40,000 = – $535,000. However, it is possible to save 5*$61,000 = $305,000. As a result, the spending of the company will be $230,000. Subsequently, the Total Cost of Ownership, TCO is $230,000 for this option.

The expenses will be as follows -$250,000 – 3*$75,000 = – $475,000 for Option 2. The company will be in a position to save 5*$25,000 = $125,000. Consequently, the expenditure of the company on this software will be $350,000. It means that $350,000 will be the TCO for this option.

ROI = (Gain from Investment – Cost of Investment) / Cost of Investment

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Option 1: Gain from Investment = $1,000,000* 1.1 + $1,100,000 * 1.1 + $1,210,000 *

1.1 + $1,331,000 * 1.1 + $1,464,100*1.1 = $6,716,000

Cost of Investment = $230,000

ROI = ($6,716,000 – $230,000) / $230,000 = 28.2%

Option 2: Gain from Investment = $6,716,000

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Cost of Investment = $350,000

ROI = ($6,716,000 – $350,000) / $350,000= 19.9%

In this case, the best option is selecting Option 1. This is because Option 2 requires more financial costs than Option 1, while the prediction indicates that both the options will attract the same profit.