Use first year of positive cash flow to calculate break-even fraction
0.762
Actual break even occurs at
1.76 years
Problem and Exercise #4

Chapter 6
Initiating and Planning Systems Development Projects
5.
Students should estimate, as best they can, the dollar figures for each of the costs they described
in their answer for Question 3.
In addition, they should quantify, as best they can, the benefits
from such a system.
They should then present an analysis with each of the items provided in the
spreadsheet for the previous question.
For the answer provided above for Question 3, let us
assume that the one-time costs of implementing this LAN are $50,000 and the recurring costs are
$20,000 per year.
Assume the benefits are $65,000 per year.
The following spreadsheet analysis
provides an economic summary of this situation.
60
Year 0
Year 1
Year 2
Y ear 3
Year 4
Year 5
Totals
Net Economic
Benefit
$0
$65,000
$65,000
$65,000
$65,000
$65,000
Discount Rate (.12)
1.0000
0.892857
0.797194
0.711780
0.635518
0.567427
PV of Benefi ts
$0
$58,036
$51,818
$46,266
$41,309
$36,883
NPV of all Benefits
$0
$58,036
$109,853
$156,119
$197,428
$234,310
$234,310
One-Time Costs
$50,000
Recurring Costs
$0
$20,000
$20,000
$20,000
$20,000
$20,000
Discount Rate (.12)
1.0000
0.8929
0.7972
0.7118
0.6355
0.5674
PV of Recurring
C osts
$0
17,857
$15,944
$14,236
$12,710
$11,349
NPV of all Costs
$50,000
$67,857
$83,801
$98,037
$110,747
$122,096
$122,096
Overall NPV
$112,215
Overall ROI
0.92
Break-even Analysis
Y early NPV
C ash Flow
($50,000)
$40,179
$35,874
$32,030
$28,598
$25,534
Overall NPV
C ash Flow
($50,000)
($9,821)
$26,052
$58,082
$86,681
$112,215
Project breakeven occurs between years 1 and 2
Use first year of positive cash flow to calculate break-even fraction
0.274
Actual breakeven occurs at
1.27 years
Problem and Exercise #5

Modern Systems Analysis and Design, 3rd edition
Instructor’s Manual
6.
For the system described in the answer for Problem and Exercise 3, assume the following generic
system specifications.
There are nine 1.3 GHz Pentium 4s, each with 128MB of RAM, 20GB
hard drives, and 17-inch color monitors.
There is one 1.7 GHz Pentium 4, with 512 MB of
RAM and a 60GB hard drive with a 17-inch color monitor.
Each PC has a high quality network
interface card, and each comes with Windows 2000. The LAN is Novell NetWare, with
twisted-pair cabling.
7.
The following spreadsheet summarizes the economic analysis requested in this question.
61
Year 0
Year 1
Year 2
Year 3
Y ear 4
Year 5
Totals
Net Economic
Benefit
$0
$85,000
$85,000
$85,000
$85,000
$85,000
Discount Rate (.10)
1.0000
0.909091
0.826446
0.751315
0.683013
0.620921
PV of Benefits
$0
$77,273
$70,248
$63,862
$58,056
$52,778
NPV of all Benefits
$0
$77,273
$147,521
$211,382
$269,439
$322,217
$322,217
One-Time Costs
($75,000)
Recurring Costs
$0
($35,000)
($35,000)
($35,000)
($35,000)
($35,000)
Discount Rate (.10)
1.0000
0.9091
0.8264
0.7513
0.6830
0.6209
PV of Recurring
C osts
$0
(31,252)
($28,926)
($26,296)
($23,905)
($21,732)
NPV of all Costs
($75,000)
($106,252)
($135,178)
($161,474)
($185,379)
($207,111)
($207,111)
Overall NPV
$115,106
Overall ROI
0.56
Break-even Analysis
Y early NPV
C ash Flow
($75,000)
$46,021
$41,322
$37,566
$34,151
$31,046
Overall NPV
C ash Flow
($75,000)
($28,979)
$12,343
$49,909
$84,059
$115,106
Project break-even occurs between years 1 and 2
Use first year of positive cash flow to calculate break-even fraction
0.701
Actual break-even occurs at
1.7 years
Problem and Exercise #7