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Assume monetary benefits of an information system of $40,000 the first year and increasing benefits of $10,000 a year for the next five years (year
Assume monetary benefits of an information system of $40,000 the first year and increasing benefits of $10,000 a year for the next five years (year 1 = $50,000, year 2 = $60,000, year 3 = $70,000, year 4 = $80,000, year 5 = $90,000). One-time development costs were $80,000 and recurring costs were $45,000 over the duration of the systems life. The discount rate for the company was 11 percent. a) Using a six-year time horizon, calculate the net present value of these costs and benefits. Also, calculate the overall return on investment (ROI) and then present a break-even analysis. At what point does break-even occur? b) Change the discount rate to 12 percent and redo the analysis. c) Change the recurring costs to $40,000 and redo the analysis. d) Comment of the results of the calculations.
Assume monetary benefits of an information system of $40,000 the first year and increasing benefits of $10,000 a year for the next five years (year 1 = $50,000, year 2 = $60,000, year 3 = $70,000, year 4 = $80,000, year 5 = $90,000). One-time development costs were $80,000 and recurring costs were $45,000 over the duration of the systems life. The discount rate for the company was 11 percent.
a) Using a six-year time horizon, calculate the net present value of these costs and benefits. Also, calculate the overall return on investment (ROI) and then present a break-even analysis. At what point does break-even occur?
b) Change the discount rate to 12 percent and redo the analysis.
c) Change the recurring costs to $40,000 and redo the analysis.
d) Comment of the results of the calculations.
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