Present value analysis applied to EDA software alternatives

Net present value analysis is commonly applied to decisions regarding investments made in physical assets. Decisions regarding investments in electronic design automation (EDA) software, however, are often made on technical merits and purchase price, not on the potential of the software tools to increase the value of the firm. For firms involved in designing integrated circuits and systems, this method for selecting EDA software ignores the potential impact on future cash flows as determined by the productivity of the EDA environment and the rewards for reaching markets earlier. This article, therefore, is addressed to those financial and engineering managers who want to consider the financial impact of EDA tool alternatives. This article describes an approach to determining the incremental cash flows for a firm which chooses to invest in high-level integrated circuit (IC) design software. In-depth technical knowledge of the particular software tools is not required to perform this analysis. The net present value of this stream of cash flows then becomes another data point in the purchase decision