Assume the following facts: A project will cost $45,000 to develop. When the sys

Question

Assume the following facts:

A project will cost $45,000 to develop. When the system becomes operational, after

a one-year development period, operational costs will be $9,000 during each year of

the system’s five-year useful life. The system will produce benefits of $30,000 in the

first year of operation, and this figure will increase by a compound 10% each year.

What is the payback period for this project?.........

Complete the Cost Analysis Project #2 under Exercises at the end of Chapter 7 of the text.Use the spreadsheet method depicted in Part C of the Systems Analyst’s Toolkit to display the Net Present Value of the systemToolkit CWrite a response of approximately 250 words summarizing how you derived at your answer.

Explanation / Answer

By the end of 2 years we still have negative cash flow in cumulative cash flows.

So Payback period = 2 years + Balance / cash flow of 3rd year = 2 + 24000/33000 = 2.73 Years.

Year Cashflow Cumulate 0 -45000 -45000 1 -9000 -54000 2 30000 -24000 3 33000 9000 4 36300 45300 5 39930 85230 6 43923 129153

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