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An Economic Analysis of Building vs. Buying a Desktop Computer

An Economic Analysis of Building vs. Buying a Desktop Computer. Macarius Brownfield Stephen Logsdon Jorge Moran. Team 7. Agenda. Consumer Information Scenario #1 - Buy Scenario #2 - Build Present Worth Analysis of Scenarios Sensitivity Analysis Conclusion.

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An Economic Analysis of Building vs. Buying a Desktop Computer

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

  2. Agenda Consumer Information Scenario #1 - Buy Scenario #2 - Build Present Worth Analysis of Scenarios Sensitivity Analysis 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 • Includes: installation, hardware, software, warranties, and tech support. • Internet Subscription Cost: $22/mo (after 6 months) • Security Software Subscription Cost: $40/yr (after 1 year) • Shipping Cost:$118 (3-5 days)

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

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

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

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

  10. Present Worth Analysis

  11. Sensitivity AnalysisCheaper Monitor • Opting away from a flat panel monitor

  12. Sensitivity AnalysisLonger Setup Time • Setup takes 8.0 hours for build option

  13. Sensitivity AnalysisLonger Setup Time

  14. Sensitivity AnalysisQuicker Shipping • Choosing 2-day shipping

  15. Sensitivity AnalysisQuicker Shipping

  16. Sensitivity AnalysisComputer Crash Every Year • Assuming 5 hours for repairs at $10 per hour

  17. Sensitivity AnalysisComputer 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

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

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