Dirt Bikes

Overview
Dirt Bikes USA has encountered the problem where their software is going out of date and there is newer, faster and more efficient software on the market that could better the company’sproduction planning, quality control, and scheduling. Dirt Bikes have decided that they will need to upgrade. They have two options to look at for this infrastructure chance, they could purchase thesoftware and all the additional requirements that go along with the purchase or they could lease the product from an ASP vendor. Before any decision can be made whether to buy or to lease the product wewill discuss the costs that run along with each respective option. Dirt Bikes are basing their decision on the cheapest option over a three year time period.
Buying the software
To buy theproduct, Dirt Bikes USA will have to purchase the license to be able to install and run the product on their systems. This will be a single payment of $100,000 at the start of year 1. The cost ofimplementing and customizing the software to fit Dirt Bikes’ system will be $24,000 in the first year only. Along with buying the software and installing it, they will need a new server to run the softwareon which will be $4,000 to be paid only once in the first year. They will also need a full time Information Systems specialist to be there as support for the software which would be $27,500($55,000/2 for a half year salary) in the first year as a salary and increasing at 1.5% (3%/2 for a half year salary) every year thereafter. The specialist will then receive $27,913 in the second year and$28,331 in year 3. The company staff that uses the software will need training which will cost $10,000 in the first year. The final cost component for buying the software will be annual updatescosting $5,000 in years 1 through 3. As we can see below in the table, Dirt Bikes will have to pay $232,744 to buy the software. The question that immediately jumps to mind is.

Renting the Software...