Use first year of positive cash flow to calculate break even fraction 0762

Use first year of positive cash flow to calculate

• 17
• 100% (1) 1 out of 1 people found this document helpful

This preview shows page 6 - 10 out of 17 pages.

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
Chapter 6 Initiating and Planning Systems Development Projects 8. The following spreadsheet summarizes the economic analysis requested in this question. Remind students to use 12 percent as the discount rate.