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Chapter 8
but we can work with them as positive numbers. The hurdle rate is the rate of discount
over the period, and it is the minimum acceptable rate of return on a project that a
company will accept. For this example, assume a hurdle rate of 20 percent.
Your spreadsheet should begin like the one shown in Figure 8-8 (with years continuing
through 2017).

2013 2014 2015 2016 2017

236

SaaS

Source Line: Course Technology/Cengage Learning.

FIGURE 8-8 Cost comparisons: buying versus SaaS

To complete this part of the exercise, perform the steps that follow:

1. Calculate the cost of the two methods of implementing an ERP system for
five years. Use the spreadsheet illustrated in Figure 8-8 as your guide. Use the
NPV calculations to reference the hurdle rate shown at the bottom of the
spreadsheet. Vary the hurdle rate, following the directions your instructor
provides.
2. Consider using different hurdle rates for each option. Why might varying
hurdle rates be applicable for this decision?
3. Write a memo, with your spreadsheet attached, to the CIO. Answer this
question: Which method should Fitter choose, and why? Weigh the pros and
cons of each method, and make a recommendation, which the CIO will
present to the chief financial officer of Fitter. Be sure to consider both the
qualitative aspects and the quantitative aspects of the choice.

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