Assignment
Part 1:
Please complete the below problems and submit your answers in the Week 7 Dropbox. See "Syllabus/Due Dates for Assignments & Exams" for due date information.
Three Rivers Company runs clothing stores in the Pittsburgh area. Three Rivers' management estimates that if it invests $250,000 in a new computer system, it can save $75,000 in annual cash operating costs. The system has an expected useful life of 10 years and no terminal Disposal value. The required rate of return is 8%. Ignore income taxes and assume all cash flows occur at year-end except for initial investment amounts to calculate the following:
1. Net present value
2. Payback period
3. Discounted payback period
4. Internal rate of return (using the interpolation method)
5. Accrual accounting rate of return based on the net initial investment (assume straight-line depreciation)
6. What other factors should Three Rivers consider in deciding whether to purchase the new computer system?
7. Should they purchase the new system? Why or why not?
Part 2:
Managers at some companies face an ongoing systems development crisis: IS departments develop systems that businesses cannot or will not use. At the heart of the problem is a "great divide" that separates the world of business and the world of IS. Few departments seem able or ready to cross this gap.
One reason for the crisis is that many companies are looking for ways to improve existing, out-of-date systems or to build new ones. Another is the widespread use of PC-based systems that have spawned high user expectations that IS departments are not meeting. Users seek more powerful applications than are available on many older systems.
The costs of the great divide can be devastating. An East Coast chemical company spent over $1 million on a budgeting and control system that was never used. The systems department's expertise was technical excellence, not budgets. As a result, the new system completely missed the mark when it came to meeting business needs. A Midwestern bank used an expensive computer-aided software engineering (CASE) tool to develop a system that users ignored because there had been no design planning. A senior analyst for the bank said, "They built the system right; but unfortunately they didn't build the right system."
REQUIRED
a. ?What is the great divide in the systems development process? What causes the gap?
b.? What would you suggest to solve this information crisis?
c.? Discuss the role a systems designer, business manager, and end user can take to narrow the great divide.
d. ?Who plays the most vital role in the effective development of the system?
Part 3:
1 Describe the three major influences on pricing.
2 Give an example of one of them.
3 Describe the two Discounted Cash Flow methods.
4 Why is capital budgeting important?
5 Discuss what you believe to be the appropriate level of involvement of an accountant in evaluating and selecting an AIS vendor and the AIS itself.
6 What are some of the contributions an accountant might offer in this process?
7 Using the company for which you work or one in which you are interested, choose the conversion approach you would use if the company purchased a new AIS. Explain your choice, including the benefits.
8 Discuss how you envision the testing process.