Transcript Tutorial PERT/CPM Chart

ITEC 2010 “Systems Analysis and Design, I”
Tutorial:
Financial Feasibility
[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
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DF (t ) 
, where DF - discount rate;t - number of years
t
1 DR
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DF(0)=1; DF(1)=0.9091; DF(2)=0.8264;…
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Present Value
PV Amountreceivedin yeart x DF (t )
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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
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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 yearby-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?
BEP2 years LastNegativeCum ulativeNPV*
LastNegativeCum ulativeNPV
LastNegativeCum ulativeNPV  FirstPositiveCum ulativeNPV 
BEP 2 years 4796*
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4796
 2.005
4796951,605
To express 0.005 in days, 0.005*365≈2 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)
ROI TotalPVBenefitsTotalPVCosts/TotalPVCosts
ROI 6,122,8931,336,000913,559/
1,336,000913,559172.18%
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