Problem 2

Assume that the monetary benefits of an information system are $40,000 at the beginning of the project 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 $90,000, and recurring costs were $50,000 over the duration of the systems life. The discount rate for the company was 12 percent. Using a six-year time horizon (y0, y1, y2, y3, y4, y5) do the following:

1. Calculate the net present value of these costs and benefits
2. Calculate the overall return on investment
3. Complete a break-even analysis (at what point does break-even occur?)
4. Generate a graphical representation of the break-even analysis in case that it occurs at any point from y0 to y5