1. An Economic Analysis of Building vs. Buying a Desktop Computer Macarius Brownfield Stephen Logsdon Jorge Moran Team 7

2. Agenda Consumer Information Consumer Information Scenario #1 - Buy Scenario #1 - Buy Scenario #2 - Build Scenario #2 - Build Present Worth Analysis of Scenarios Present Worth Analysis of Scenarios Sensitivity Analysis Sensitivity Analysis Conclusion Conclusion

3. Consumer Information 18-year old Engineering Freshman Makes $10/hour at Foot Locker Needs a powerful computer that can handle typical engineering applications Computer is replaced every 2 years for his 6-year college career.

4. Major Desktop Components Pentium 4 3-GHz Processor 512MB SDRAM Flat Panel Display 80GB Hard Drive Dual CD-RW and DVD-ROM Drives Microsoft XP Operating System Microsoft Office Small Business

5. Scenario #1 - Buy Dell Dimension 4700 Series Desktop Initial Cost: $1,947 Initial Cost: $1,947 Includes: installation, hardware, software, warranties, and tech support. Internet Subscription Cost: $22/mo (after 6 months) Internet Subscription Cost: $22/mo (after 6 months) Security Software Subscription Cost: $40/yr (after 1 year) Security Software Subscription Cost: $40/yr (after 1 year) Shipping Cost: $118 (3-5 days) Shipping Cost: $118 (3-5 days)

6. Cash Flow - Buy $189 $40 $2066 $178 $2066 $178 $2066 $178 0 12 24 36 48 60 72 i = 6%

7. Scenario #2 - Build Best Deals Found Online Initial Parts Cost: $1,532 Initial Parts Cost: $1,532 Includes: Hardware, Software. Labor Cost: $65 ($10/hour for 6.5 hours) Labor Cost: $65 ($10/hour for 6.5 hours) Internet Subscription Cost: $22/mo Internet Subscription Cost: $22/mo Security Software Subscription Cost: $40/yr Security Software Subscription Cost: $40/yr

8. Cash Flow - Build $40 $1532 $293 $65 0 12 24 36 48 60 72 $40 $1532 $293 $65 $40 $1532 $293 $65 $40 i = 6%

9. Factors to Consider Buy $200 mail-in rebate $200 mail-in rebate 24/7 tech support 24/7 tech support Reliability ReliabilityBuild No warranties Higher risk of crash Average 1 per year

10. Present Worth Analysis BuyBuild Present Worth ($2,728.05)($2,582.04) ChooseX

11. Sensitivity Analysis Cheaper Monitor Opting away from a flat panel monitor Opting away from a flat panel monitor BuyBuild Present Worth ($2,728.05)($2,247.89) ChooseX

12. Sensitivity Analysis Longer Setup Time Setup takes 8.0 hours for build option Setup takes 8.0 hours for build option Buy 8.0 hour setup Present Worth ($2,728.05)($2,601.66) ChooseX

13. Sensitivity Analysis Longer Setup Time

14. Sensitivity Analysis Quicker Shipping Choosing 2-day shipping Choosing 2-day shipping BuyBuild Present Worth ($2,774.48)($2,582.04) ChooseX

15. Sensitivity Analysis Quicker Shipping

16. Sensitivity Analysis Computer Crash Every Year BuyBuild Present Worth ($2,728.05)($2,582.04) ChooseX Assuming 5 hours for repairs at $10 per hour Assuming 5 hours for repairs at $10 per hour

17. Sensitivity Analysis Computer Crash Every Year

18. Conclusion/Analysis All sensitivity analysis points towards build option Intangibles may affect student’s choice i.e. enjoyment factor, convenience, customization i.e. enjoyment factor, convenience, customization

19. Resources www.dell.com www.dealtime.com Newman, D.G. Essentials of Engineering Economic Analysis, 2 nd ed. Austin: Engineering Press, 2001.