Assume monetary benefits of an information system of 70,000 the first year and increasing benefits of 10,000 a year for the next four years; one-time development costs of 90,000, and recurring costs of 40,000 per year over the duration of the system's life. The discount rate for the company was 1! p
Assume monetary benefits of an information system of $70,000 the first year and increasing benefits of $10,000 a year for the next four years; one-time development costs of $90,000, and recurring costs of $40,000 per year over the duration of the system's life. The discount rate for the company was 1! percent. Using a five-year time horizon, calculate the net present value of these costs and benefits. Also, calculate the overall return on investment and then present a breakeven analysis. At what point does breakeven occur?[10]
Parameter Value ------ Benefit Year 1 $70,000 Benefit increase $10,000/year (Years 2-5) One-time development cost $90,000 Recurring cost $40,000/year Discount rate 11% (0.11) Time horizon 5 years Benefits: Y1 = 70,000; Y2 = 80,000; Y3 = 90,000; Y4 = 100,000; Y5 = 110,000. Discount factors