Essay: Club IT

Sample Essay

Calculation of ROI for Wireless Order Taking System

The Return on Investment for Wireless Order Taking System is calculated as follows:

Cost of Installation of the Wireless System: $35,000

Cost of 1 Person = $ 10/hour   X 2020 hours a year = $ 20,200 X 18% benefits = $ 23,836

Cost for the Wireless System per year = 7% * 35,000 = $2450

The system has a life of 3 year, so,

Depreciation = $35,000/3 years = $ 11,667 per year

Savings per year from the System = Total Savings from the system – Cost for the system

Savings per year from the system =   $23,836 – $2,450 = $21,386

So the Savings from investment for 3 years will be,

$ 21,386 * 3 = $ 64,158

ROI = (Savings from Investment) / Cost of Investment

ROI = 64,158/35,000 = 1.833

• ROI is defined as the percentage rate that is used to measure relationship between the savings/return on an investment and cost of that investment.
• If the resulting ROI is positive then the project is accepted.

NPV (Net Present Value)

It is calculated by discounting the costs and benefits for each year of the system’s lifetime using the present value factor calculated each year as 1/(1+ discount rate) ^year (Pearlson, 2006).

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