Question 1

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

Accepted Answer

The answer of _________ is the process of comparing the...

Question 2

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

Accepted Answer

The project with the highest net present value is considered the best investment as it generates more cash flows than the cost of the investment.

Question 3

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.

Accepted Answer

The answer of When IT department costs are not charged...

Question 4

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.

Accepted Answer

The answer of When determining economic feasibility, a systems analyst...

Question 5

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.

Accepted Answer

Payback analysis only considers the time it takes to recover the initial investment and does not take into account the benefits received after that period, which is a limitation of this method.

Question 6

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

Accepted Answer

Return on investment (ROI) analysis considers costs and benefits over a longer time span than payback analysis, typically several years. Payback analysis only considers the time it takes for the initial investment to be paid back through the project's cash flows.

Question 7

Critics of return on investment analysis raised a point that return on investment (ROI) measures the overall rate of return for a total period and annual return rates vary considerably.

Accepted Answer

Critics of ROI have indeed raised concerns that the overall rate of return over a period does not reflect the annual variations in return rates.

Question 8

_________ 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.

Accepted Answer

The answer of _________ is the total time that a...

Question 9

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

Accepted Answer

The answer of A(n) _________ is a technique that uses...

Question 10

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

Accepted Answer

Unlike payback analysis, present value analysis takes into account all costs and benefits over the entire life of a project by discounting future cash flows to their present values.

Question 11

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

Accepted Answer

The answer of _________ is the charging of indirect IT...

Question 12

In 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.

Accepted Answer

The answer of In a fixed charge method, the IT...

Question 13

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 is calculated.

Accepted Answer

This is the definition of a payback analysis.

Question 14

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

Accepted Answer

Cost-avoidance benefits refer to the expenses that can be avoided by implementing a new system, which would be necessary if the new system is not installed.

Question 15

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

Accepted Answer

The answer of _________ is the process of determining how...

Question 16

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

Accepted Answer

The answer of In a client/server system, _________ is the...

Question 17

Payback analysis, in spreadsheets, requires a formula to display cumulative totals, year by year.

Accepted Answer

Payback analysis involves calculating the number of years it takes for the initial investment to be recouped through generated cash flows. In spreadsheets, this can be done by setting up a formula to show the cumulative cash flow totals year by year, until the initial investment is fully recovered. Therefore, the statement is true.

Question 18

The time taken by payback analysis to recover an information system's costs is called the _________.

Accepted Answer

The answer of The time taken by payback analysis to...

Question 19

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

Accepted Answer

This is because the rate of return reflects the degree of risk in a project, and most projects are riskier than investing in a bond. Therefore, companies require a higher rate of return to compensate for this additional risk.

Question 20

Critics of return on investment analysis raised a point that the return on investment (ROI) technique does not recognize the timing of costs and timing benefits.

Accepted Answer

Critics argue that ROI analysis only considers the total amount of costs and benefits, without taking into account their timing or the possibility of future costs and benefits. This can result in misleading conclusions about the profitability or viability of a project.

Quiz 15: Financial Analysis Tools