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7/10/2018 1:51:33 PM

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Section 23: OPA Elections
Subject: Northstar Software Decision Msg# 1019741

From:

Ev Myers

Joined 11/2/2014

To:

Len Smith (Read)

Joined 4/14/2017

Len: thank you very much for the analysis. Very glad to see the EAC is being used to evaluate the financial option. If you want to send the spreadsheet that’s fine (eem248@nyu.edu) but not necessary if the below formula, or its equivalent, was used for the calculations.

EAC = NPV/A t, r where A= the present value of an annuity factor
t = number of periods
r = interest rate

I cannot speak to the operating efficiencies of the various alternatives since that is beyond my ken however, financially speaking the Northstar proposal, given the assumptions presented, would be the better choice than maintaining the steady-state scenario. Given the cost assumptions have already been vetted by Messrs. Viola and Phillips there is no legitimate reason to question the assumptions.

Just one observation, curious why the CD rate was chosen as the discount rate? Was it because the assumption was this is the amount that would be forgone in investment income, since OP does not finance their capital expenditures? Not a big deal since any increase in the discount factor would have an inverse effect on the NPV.

Once again, thank you……I do appreciate your professional reply.

For reference, the above message is a reply to a message where:
Ev,

1. Here are the calculations that you requested:

Northstar License OR lease $938,300

Steady State (OPA Current Expenditures) $1,013,526

Number of periods 7
Wells Fargo CD Rate 1.25%

Northstar NPV ($860,631.22)
Northstar EAC -129171.03

Steady State NPV ($958,764.41)
Steady State EAC -143899.72

I also have an Excel spreadsheet with the data and formulas that I can send you, if you want to check my formulas (please!) just email me your email address.

2. Your other comment was about the assumptions behind the steady state cost. Here are those figures:

LANSA (BDK) $680,772
Accounting Time $135,000 (1)
Subtotal/LANSA $815,772

Recware $52,500 (1)
EZ Links -

POS $22,968
Accounting Time $45,000 (1)

Net Facilities $43,290
D3 - Web Site $25,200
Constant Contact $ 5,796

Steady State Total $1,013,526

(1) Estimated cost of staff time to overcome system shortcomings

The BDK costs are actual 2017 invoice amounts. Steve Phillips also compared the $680K total to two other proxies that he thought were reasonable (one was the average 2016-2017 cost, the other I forget) and they were comparable. The other vendor costs are actuals as well. The staff costs (denoted by (1)) are estimates but they have been reviewed and checked by Viola and Phillips.

I hope this addresses your concerns about the analysis.

Len

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