Assignment: Systems Life Cycle Cost Estimation
Define all variables and show all calculations and graphs.
1. Two machines are considered for purchase. The relevant data is presented in Table 1.
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|
MODEL A
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MODEL B
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|
Investment
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$60,000
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$60,000
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|
Revenue
|
|
|
|
YR 1
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$20,000
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$30,000
|
|
YR 2
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$20,000
|
$30,000
|
|
YR 3
|
$20,000
|
$30,000
|
|
YR 4
|
$20,000
|
-
|
|
YR 5
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$20,000
|
-
|
|
Total Earning
|
$100,000
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$90,000
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Table-1. Investment and Revenues for machines A and B
a. Evaluate the data presented and decide which is a better purchase in terms of payback period, net present value (use 10 percent) and internal rate of return.
2. Banks A and B advertise different interest rates. Bank A pays a nominal rate of 5% per year compounded monthly, and Bank B pays depositors 4 ¾% per year compounded daily. Which bank has a better rate and why?
3. A project engineer has produced the estimates (in millions of dollars) presented in Table 2. Find the expected cost of the project.
Table 2 Three estimates for a project
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Item
|
Optimistic Cost
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Most Likely Cost
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Pessimistic Cost
|
|
Direct Labor
|
79
|
95
|
95
|
|
Direct Material
|
60
|
66
|
67
|
|
Indirect Expenses
|
93
|
93
|
96
|
|
Fixed Expenses
|
69
|
76
|
82
|