Perdue Flashcards
What is CAPEX?
Capital expenditure, a purchase that has a useful life of more than a year, typically above a minimum amount.
What is depreciation?
when you spread the cost of a capital expenditure over the useful life of the product. Depreciation of a computer with a 3 year lifespan will be cost of computer / lifespan, per year in depreciation.
What is cash flow?
when money moves in and out of the business.
You need to distinguish between cash and non cash item. Depreciation is a non cash items, as the item has already been paid.
What is discount rate?
That a dollar is worth more today than in five years
What are the two it-investment techniques?
Net Present value
Payback period
What is NPV?
Net present value.
You represent the inflow and outflow of the investment in a single number (NPV).
What is payback period?
Payback period = Cost of investment / Annual cost generated from investment
Annual cost is not always linear and can be uneven through the years
How do you set up an it investment proposal?
Start the proposal with a short summary of the it investment
Followed by a summary if the analysis
Then attach the spreasheet calculations
Spredsheet should include:
1. Summary
2. Net Present value (NPV) calculations
Payback period calculations
What can inflows in an npv be?
saved maintenance cost of old software.
time saved by it-staff
increased revenue
What can outflows of an npv be?
cost of software
maintenance
external implementation costs
What is usually difficult about an npv?
The difficult part is usually inflow, as it might not always be easy to calculate, if the investment only saves time.
