IT 432 CBA Exercise

Assuming monetary benefits of an information system at $85,000 per year, onetime costs of $75,000, recurring costs of $35,000 per year, a discount rate of 10 percent, and a 5-year time horizon, show calculation the net present value (NV) of the system's cost and benefits. Also calculate the overall and annual return on investment (ROl) of the project and then present a payback period -what point does break-even occur?

Cash flow description Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Development cost: ($418,040) Operation & maintenance cost: ($15,045) ($16,000) ($17,000) ($18,000) ($19,000) ($20,000) Discount factors for 12%: 1.000 0.893 0.797 0.712 0.636 0.567 0.507 Time-adjusted costs (adjusted to present value): ($418 040) ($13,435) ($12,752) ($12,104) ($11,448) ($10 773) ($10,140) Cumulative time-adjusted costs over lifetime: ($418,040) ($431,475) ($444,227) ($456,331) ($467 779) ($478,552) ($488,692) Benefits derived from operation of new system: $0 $150,000 $170,000 $190,000 $210,000 $230,000 $250,000 Discount factors for 12%: 1.000 $0.893 $0.797 $0.712 $0.636 $0.567 $0.507 Time-adjusted benefits (current of present value): $0 $133,950 $135,490 $135,280 $133,560 $130,410 $126,750 Cumulative time-adjusted benefits over lifetime: $0 $133,950 $269,440 $404,720 $538,280 $668,690 $795,440 0 2 3 4 5 6 Cumulative lifetime time-adjusted costs + benefits: ($418,040) ($297 ,525) ($174,787) ($51 611) $70,501 $190,138 $306,748