December 1999
SA205 : SYSTEMS ANALYSIS

QUESTION 5

Total Marks: 15 Marks

• Question 1
• Question 2
• Question 3
• Question 4
• Cover Page

SUGGESTED SOLUTIONS
Solutions and allocated marks are indicated in green.
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Why is it important to carry out a cost benefit analysis ?
To determine if the benefits of the proposed system outweigh the investment cost.
Other valid answers should also receive credit.

List the three cost categories which one should take into account when performing a cost benefit analysis.
One mark should be awarded for each of the following: •Installation cost.
•Investment cost.
•Annual operating cost.

(i)Describe,using an example,the term break-even analysis .[2 marks ]
(i)A break-even analysis identiifes the time taken for the proposed system to yield profit (1mark).
A further mark should be awarded for a suitable example.

(ii)Under what circumstances would a break-even analysis be used?[1mark ]
(ii)A break-even analysis would be used to convince a manager about the time taken to recover investment.
Other valid answers should also receive credit.

(iii)List one drawback associated with break-even analysis.[1mark ]
(iii)Break-even analysis assumes that benefits remain the same,regardless of which system is in place.
Other valid answers should also receive credit.

(i)Describe,using an example,the term payback period .[2 marks ]
(i)The payback period identifies the number of years required to accumulate earnings to cover cost (1mark).
A further mark should be awarded for a suitable example.

(ii)Under what circumstances would a payback period be calculated?[1mark ]
(ii)To compare two projects and determine which should be chosen.
Other valid answers should also receive marks.

(iii)Give the equation for payback period when taxes are taken into consideration.[1mark ]

(i)Describe,using an example,the term marginal efficiency of investment .[2 marks ]
(i)Marginal efficiency of investment measures the rate of return a proposed system will earn after the cost is recovered (1mark).A further mark should be awarded for a suitable example.

(ii)Under what circumstances would the marginal efficiency of investment be calculated?[1mark ]
(ii)To determine if the rate of return of an investment is comparable when invested in a computerised project or otherwise. Other valid answers should also receive credit.