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Monetary Benefits of an Information System

Assume monetary benefits of an information system of $50,000 the first year and increasing benefits of $5000a year of the next four years year 1=$50,000; year 2 $55,000; year 3 $60,000; year 4 $65,000; year 5 $65000. One-time development costs were $90,000 and recurring costs beginning in year1 were $40,000 over the duration of the system life the discount rate for the company was 10 percent using the five years 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 breakeven analysis , perform the BEA at what point does breakeven occur?

Solution Preview

In order to calculate NPV for the 5 year horizon period, let us first PV for each year via the following formula:

Rt/(1+i)t

Where:

R= Net cash flow (inflow minus outflow)
T= Time frame
i= Discount rate (10% or .10 in this case)

Present value figures will be as follows:

T= 0
-90,000 (-90,000)/(1+.10)0= -90,000
T=1
(50,000)/(1+.10)1= 9091

T=2
(55,000)/(1+.10)2= ...

Solution Summary

Assume monetary benefits of an information system of $50,000 the first year and increasing benefits of $5000a year of the next four years year 1=$50,000; year 2 $55,000; year 3 $60,000; year 4 $65,000; year 5 $65000. One-time development costs were $90,000 and recurring costs beginning in year1 were $40,000 over the duration of the system life the discount rate for the company was 10 percent using the five years 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 breakeven analysis , perform the BEA at what point does breakeven occur?

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