Assume monetary benefits of an information system of $50,000 the first year and increasing benefits of...

Assume monetary benefits of an information system of $50,000 the first year and

increasing benefits of $5,000 a year for the next four years (year 1 = 50,000; year 2-

55,000; year 3 = 60,000; year 4 = 65,000; year 5 – 70,000). One-time development

costs were $90,000 and recurring costs beginning in year 1 were $40,000 over the

duration of the system’s life. The discount rate for the company was 10 percent.

Using a 5-year horizon, calculate the net present value of these costs and

benefits. Also calculate the overall return on investment of the project and then

present a break-even analysis. At what point does break-even occur?

Deliverables:

1. Prepare a worksheet (in MS Excel) for the economic analysis. Choose

appropriate format for the worksheet. Use currency symbols for the numbers

indicating monetary values. You must use formula (MS Excel) for your

calculations in the worksheet.

Solutions

Expert Solution

Answer 1:

NPV = - $17,783.12

Overall Return on Investment = 11.11%

Break-even point occurs at 4.67 years

Workings:

Above excel with 'show formula'

ekkarill92 answered 1 year ago

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