TO: (readers’ names and job titles)
FROM: (your name and job title)
DATE: (complete and current date)
SUBJECT: (what the memo is about, highlighted in some way)
The recent company growth required the construction of anew Divisional Office that houses management, sales / marketing human resources, finance, and accounting personnel for the division. In our effort to provide this new divisional office with an appropriate telephony systems that will provide necessary functionality for the present, accommodate future growth, and satisfy the cost requirements of the Finance Department, the IT Department selected a new 825 line PBX / Voice Messaging system. The benefits of this new technology are increased services for customers, decreased cost of service provided, savings from structural changes, reduction of operating costs in the future, better customer or staff satisfaction, enhanced ability for the customer to meet their business goals and improved communications. I was asked either to make a recommendation to lease or to buy the new phone system. In order to find out the better option that will benefit the company, I examined the advantages of leasing versus buying and analyze the seven-year NPV Feasibility Analysis. This memo will present my findings together with the attached NPV Feasibility Analysis and my recommendations.
Findings:
The Net Present Value (NPV) Feasibility Analysis revealed that if the company chooses to purchase the system, the company is expected to spend 4,125 on Initial Purchase Cost. If the company chooses to lease the system, the company is expected to spend nothing on Initial Least Cost. If the company chooses to purchase the system, the expected operating cost for the first year is 7,586. The initial Annual Lease Operating Cost (,214) plus the first year Lease Cost (5,500) is 1,714. The Feasibility Analysis further revealed that the Total PV Operating Cost (Purchase) for seven years will be ,808,578 compared to ,866 Total PV Operating Cost (Lease). The table below shows the Purchase vs. Lease Cost Comparison for seven years.
Purchase vs. Lease Cost Comparison
Description
Purchase
Lease
Diff$
Diff%
Initial Costs
(4,125)
(4,125)
100%
Total PV Operating Cost
,808,578
(,866)
103%
TOTAL LCA COST
4,453
(,866)
4,319
106.4%
Recommendation:
In line with the company’s goal for expansion and its plan to acquire a new phone system that will increase the productivity and effectivity of the company and meet to needs of the customers while satisfying the cost requirements of the Finance Department, I recommend that the company opt to lease the PBX/Voice Messaging system for seven years. This recommendation is based on the benefits and cost avoidance of the recommended option compared to purchasing the system.
Credit:ivythesis.typepad.com
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