Tutorial: Financial Feasibility

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TutorialFinancial Feasibility
ITEC 2010 Systems Analysis and Design, I
Prof. Peter Khaiter
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Financial Feasibility (3 groups of calculations)

• Present value (PV)
• Payback period (breakeven point) PBP/BEP
• Return on investment (ROI)

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Present Value

• Time value of money
• Money tomorrow is cheaper than money today
• In order to total money from different time
  periods, a corresponding discount factor must be
  used
• DF(0)1 DF(1)0.9091 DF(2)0.8264

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Present Value
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RMO Cost Benefit Analysis
Line 3 is the product of line 1 and line 2 Line 7
is the product of line 5 and line 6
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Payback Period

• Breakeven point is the point in the future, at
  which benefits become equal to costs.
• Line 9 in the Table represents Cumulative NPV of
  benefits and costs calculated year-by-year from
  Line 8
• The second year in Line 9 shows a deficit of
  4796 whereas the Year 3 ends with a positive
  value of 951,609
• Therefore, the breakeven occurs during Year 2

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Payback Period

• How to calculate the breakeven date precisely?
• To express 0.005 in days, 0.0053652 days
• PBP is 2 years and 2 days (see Line 10 in the
  Table)

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Return on Investment

• Shows the percentage return (like an interest
  rate) over the specified period of time (see Line
  11)