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Introduction to Financial Modeling on Spreadsheets

Case written by Shivram Apte as part of instruction material developed for teaching at a class in Business Schools. Case
facts and decisions are not intended to be a demonstrator of correct or incorrect handling of management situations. They
are for discussion only.

Consider the following situation:

Your company is considering an investment of Rs 10,000,000 in an IT implementation


for CRM / HRIS / Warehouse Management

The IT vendor is confident that the system will pay for itself in 3 years.

In fact, the consulting arm of the IT vendor has completed a study at your company and
they are extremely confident that the implementation will provide you with incremental
cash flows of Rs 300,000 per month across the next 3 years at least.

You company's current cost of debt is 12% p.a. and your shareholders have been
enjoying a return on equity of Rs 18% p.a. for the last few years.

Your current CFO insists on a hurdle rate of 18% return before he will green-light any
project.

Please advise how you would negotiate with the IT solution vendor / with your CFO.

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