BUS 300: Economic Feasibility Analysis of E-commerce and Info Systems

This assignment analyzes the economic feasibility of implementing an e-commerce website and an information system. The solution calculates the Net Present Value (NPV), Return on Investment (ROI), and break-even points for both projects. The e-commerce website shows a positive NPV and a high ROI of 170.19%, with a break-even point at 1.37 years. The information system has a lower NPV due to higher initial investment and lower present cash flows, with an ROI of 63.24% and a break-even point between the 4th and 5th year. The analysis includes graphical representations of cash flows and break-even points, demonstrating the financial viability of each project. The student uses the provided data to assess the financial health of the e-commerce website and information systems, providing insights into their potential for growth and profitability.

Running Head: Economic Feasibility 1
Economic Feasibility
Student Name
2/3/2020

Running Head: Economic Feasibility 2
Problem 1
Net Present value shows the present cash within the project. The net present value
of e-commerce website is positive. It shows that there are enough cash in the project
because the Net Cash Flow for the year is $ 85,095.96. Therefore, it shows that the
overall flow of cash is good in the project(Marchioni, & Magni, 2018)
The overall return on investment is calculated by dividing present value of net
cash flow with the initial investment. The return on investment is the discount rate at
which the net present value arises to be zero. Here the present value is 85096 and initial
investment is 50000. Therefore, Return on Investment is 170.19%. It shows that the
returns are good. The return of investment is worthy full and satisfied (Smit & Trigeorgis,
2017)
The break-even point occurs when both cash flows that are cash out flow and cash
inflow meets at a point. The break-even situation is that where there is no profit and no
loss. In this the break-even occurs in 1.37 Years. In the first year there was negative
incremental cash flow and break-even occurs between the 1st and 2nd year(Smit &
Trigeorgis, 2017)
The graphical representation is an important tool and makes the clear
understanding of every analysis. The graph of e-commerce project shows a positive side
and increment. The graph is increasing and will have more earning in future. The break-
even point was at 50000 and in between 1st and 2nd year. The graph also represents that
there are more total cash flows in the year compare to total cash outflow. Therefore, it is
a positive sign for the e-commerce website to do business. Therefore, in order to analyze
the graph of breakeven point it has been analyzed that the company will face breakeven
point between the years of 1 – 2 after which the cash inflow of the company will increase
that showcase the positive sign for the company to grow in the market. Any project,
business can be called as good and positive where the inflows are more than outflows.
Also, the inflows are increasing with the year (Marchioni, & Magni, 2018)

Running Head: Economic Feasibility 3
Problem 2
Net present value states proper cash flows of the project. It tells the project situation at
present. The information system has a present value of $50594.6. it represent the positive
sign for the company. it represent that the company can get good return from the market
while it will invest its amount in such market. However, in order to compare it with the
previous project, the NPV of this project is low. This occurred due to the higher initial
investment and low present cash flows. The NPV is not that much satisfied as comparison to
the previous project (Shu, Zeithammer, & Payne, 2016)
The return on investment is very necessary to be known and it calculated by dividing
present value of cash flow with the initial investment. The return on investment is 63.24%. It
shows that the company will get approximately 60% return from the investment which
showcase that the company will receive satisfactory return from the investment that could
help the company to grow in the competitive market in an effective as well as in an efficient
manner.
The break-even occurs when the cash inflows and outflows matches at a single point. The
break-even of information system occurs between the year 4 and 5 that is 4+1.95 = 5.95
years. The first 4 year there was negative incremental of cash (Marchioni, & Magni, 2018)
The graph represents orange line of cash inflows and blue line of cash outflows.
Breakeven point is one of the point that represent the company will not earn any profit and
does not face any loss at such point. The company will face the break-even point in between
the years of 4 to 5 before which the cash outflow of the company will be high as comparison
to the cash inflow. Therefore, the company incremental cash outflow can create in issue for
the company which can directly affect over the revenue and growth of the company to the
certain extent (Shu, Zeithammer, & Payne, 2016)

Running Head: Economic Feasibility 4
References
Marchioni, A., & Magni, C. A. (2018). Investment decisions and sensitivity analysis: NPV-
consistency of rates of return. European Journal of Operational Research, 268(1), 361-
372.
Shu, S. B., Zeithammer, R., & Payne, J. W. (2016). Consumer preferences for annuity
attributes: Beyond net present value. Journal of Marketing Research, 53(2), 240-262.
Smit, H. T., & Trigeorgis, L. (2017). Strategic NPV: Real options and strategic games under
different information structures. Strategic Management Journal, 38(13), 2555-2578.