BIZ201 Accounting for Decision Making Assessment 4

TASK 2

As part of the improvement process, the hotel would like to invest into an event management software package that would help to manage the events side of the business. The hotel found a suitable software supplier. The software package will significantly improve event management through streamlining processes and decreasing the time spent on booking and quoting events. As a result of the capital investment, an increased revenue and higher efficiency is expected regardless of the type of financing of the software package. The expected useful life of the software package is three years. Two payment options have been offered to the hotel. The first option is to pay a one-off licence fee of $7,100 upfront and after that, an upgrade fee of $250 a year increasing by 4% every year paid at the end of each year. The second option is a subscription fee of $250 per month increasing by 3% each year paid at the end of each year, there is no upfront payment.

REQUIRED
Compare the two options of financing the software package over the expected useful life of the software. Make a recommendation on which option is financially better for the Hotel. Provide explanation for your recommendation. Take into account the time value of money and the estimated cost of capital of 9% p.a.