Essentials of Systems Analysis and Design (6th Edition)
Essentials of Systems Analysis and Design (6th Edition)
6th Edition
ISBN: 9780133546231
Author: Joseph Valacich, Joey George
Publisher: PEARSON
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Chapter 4, Problem 24PE
Program Plan Intro

Economic feasibility analysis of an information system:

Monetary benefits of an information system = ($40,000 for year 1), ($50,000 for year 2), ($60,000 for year 3), ($70,000 for year 4), ($80,000 for year 5), ($90,000 for year 6).

One-time costs = $80,000

Recurring cost = $40,000 per year.

Discount rate = 11%

Time period = 6 years

Explanation of Solution

Overall Return on Investment (ROI):

Overall return on investment can be calculated as:

Overall ROI = (Overall NPV / NPV of all costs)

Overall NPV = (NPV of all benefits – NPV of all costs)                    �

Explanation of Solution

Break-Even Analysis (BEA):

  • Break even analysis is carried out by determining NPV of yearly cash flows.
  • The yearly cash flows are calculated by subtracting present values of recurring costs from the present value of yearly benefits...

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