A IT manager is evaluating two proposals to reduce costs in serving customers

A IT manager is evaluating two proposals to reduce costs in serving customers. The costs are shown below with the benefits of each proposal being equal. One will be implemented in-house and the other in the "Cloud". There is no salvage value nor working capital with either proposal. The depreciation is 3-year MACRS. Both the development and implementation costs can be depreciated if the result is not a product to be sold. A five year time span is to be used to evaluate the proposals.
Using a present worth criteria, which should be selected.
MACRS Rates(%)
1 2 3 4 5 
3-Year 33.33% 44.45% 14.81% 7.41%
5-year 20.00% 32.00% 19.20% 11.52% 11.52% 5.76%
Data Block In-house Cloud
Development costs $100,000 $125,000 Up front
Implementation costs $25,000 $60,000 Up front
Maintenance costs $4,000 $3,000 annual
Storage costs $20,000 $10,000 annual
Depreciation MACRS Years 3 3 years
Tax Rate 25% annually
MARR 15%
Solution


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