Deck 15: Financial Analysis Tools

Question 1

The _____ of a future dollar is the amount of money that, when invested today at a specified interest rate, grows to exactly one dollar at a certain point in the future.

A) past value
B) present value
C) probable value
D) projected value

Answer 1

B

Question 2

Indirect costs, or overhead expenses, cannot be attributed to the development of a particular information system.

Answer 2

True

Question 3

Direct costs are costs that can be associated with the development of a specific system.

Answer 3

True

Question 4

Direct costs usually are more difficult to identify and predict than indirect costs.

Question 5

Tangible costs are costs whose dollar values cannot be calculated easily.

Question 6

The cost of customer dissatisfaction, lower employee morale, and reduced information availability are examples of _____.

A) tangible costs
B) fixed costs
C) intangible costs
D) variable costs

Question 7

Fixed costs are costs that are relatively constant and do not depend on a level of activity or effort.

Question 8

Positive benefits increase revenues, improve services, or otherwise contribute to an organization as a direct result of a new information system.

Question 9

With a variable charge method based on volume, indirect IT department costs are _____.

A) treated as general organizational costs and not charged to other departments
B) allocated to other departments based on user-oriented activity
C) varied from month to month, depending on a department's use of resources
D) divided among all departments in the form of a set monthly charge

Question 10

ROI is calculated with the formula _____.

A) ROI = (total benefits - total costs) / total costs
B) ROI = (total costs - total benefits) / total costs
C) ROI = (total benefits - total costs) / total benefits
D) ROI = (total costs - total benefits) / total benefits

Question 11

Development costs are incurred after a system is implemented and continue while the system is in use.

Question 12

____ means that the projected benefits of a proposed system outweigh the estimated costs.

A) Operational feasibility
B) Technical feasibility
C) Economic feasibility
D) Schedule feasibility

Question 13

Intangible costs are costs for which a specific dollar value can be assigned.

Question 14

With a fixed charge method, indirect IT department costs are _____.

A) treated as general organizational costs and not charged to other departments
B) allocated to other departments based on user-oriented activity
C) varied from month to month, depending on a department's use of resources
D) divided among all departments in the form of a set monthly charge

Question 15

With a variable charge method based on resource usage, indirect IT department costs are _____.

A) treated as general organizational costs and not charged to other departments
B) allocated to other departments based on user-oriented activity
C) varied from month to month, depending on a department's use of resources
D) divided among all departments in the form of a set monthly charge

Question 16

If a spreadsheet program includes a built-in present value function, the program inputs the formula and users input the _____.

A) amount
B) discount rate
C) number of time periods
D) all of the above

Question 17

With a no charge method, indirect IT department costs are _____.

A) treated as general organizational costs and not charged to other departments
B) allocated to other departments based on user-oriented activity
C) varied from month to month, depending on a department's use of resources
D) divided among all departments in the form of a set monthly charge

Question 18

Cost-benefit analysis is performed _____ to determine the economic feasibility of an information system project and to compare alternative solutions.

A) at the beginning of the SDLC
B) in the middle of the SDLC
C) at the end of the SDLC
D) throughout the SDLC

Question 19

Variable costs are costs that vary depending on the level of activity.

Question 20

Operational costs are incurred only once at the time the system is developed or acquired.

Question 21

____________________ is the process of comparing the anticipated costs of an information
system to the anticipated benefits.

Question 22

With a fixed charge method, the IT group is regarded as a(n) ____________________, which is a department that is expected to break even or show a profit.

Question 23

When determining economic feasibility, a systems analyst must consider a project's benefits compared to the project's ____________________, which includes ongoing support and maintenance costs, as well as acquisition costs.

Question 24

____________________ is the charging of indirect IT department costs based on the resources used by an information system.

Question 25

Return on investment analysis considers costs and benefits over a shorter time span than payback analysis.

Question 26

The period between the beginning of systems operation and the point when operational costs are rapidly increasing is called the ____________________ of the system.

Question 27

The ROI (return on investment) technique recognizes the timing of costs and benefits.

Question 28

Payback analysis often is used to compare or rank projects because later benefits are noticed.

Question 29

A(n) ____________________ is a technique that uses accounting entries to allocate the indirect costs of running an IT department.

Question 30

____________________ is the process of determining how long it takes an information system to pay for itself.

Question 31

In present value analysis, most companies require a rate of return that is higher than the discount rate because of the degree of risk compared with investing in a bond.

Question 32

When IT department costs are not charged to other departments, the information systems department is called a(n) ____________________, because it generates accounting charges with no offsetting credits for IT services.

Question 33

____________________ is the total time that a user is connected actively to a remote server - some Internet service providers use this as a basis for charges.

Question 34

When conducting a payback analysis, the time it takes for the accumulated benefits of an information system to equal the accumulated costs of developing and operating the system are calculated.

Question 35

When comparing the net present values of projects, all things being equal, the project with the lowest present value is the best investment.

Question 36

Some managers are critical of payback analysis because it places all the emphasis on early costs and benefits and ignores the benefits received after the payback period.

Question 37

The time it takes to recover an information system's costs is called the ____________________.

Question 38

Unlike payback analysis, present value analysis considers just the earlier values, and not all the costs and benefits.

Question 39

In a client/server system, ____________________ is the time that the server actually responds to client requests for processing.

Question 40

Cost-avoidance benefits refer to expenses that would be necessary if a new system is not installed.

Question 41

The concept that a future monetary value is related to a specific value invested today is known as the time value of money, and it is the basis of a technique called ____________________.

Question 42

____________________ is a percentage rate that measures profitability by comparing the total net benefits (the return) received from a project to the total costs (the investment) of the project.

Question 43

To help perform present value analysis, adjustment factors for various interest rates and numbers of years are calculated and printed in tables called ____________________.

Question 44

The ____________________ of a project is the total present value of the benefits minus the total present value of the costs.