Final Term - ITIA

Question 1

IT Investment

Answer 1

Defined as the investment decisions of allocating all types of resources to an Information System
- Personnel
- Software (Application, System)
- Hardware

Question 2

MARR

Answer 2

Minimum Attractive Rate of Return
- Project not economically viable unless return at least the MARR

Question 3

WACC

Answer 3

Weighted Average Cost of Capital
- Weighted average cost of equity financing and debt financing

Question 4

Risk Premium

Answer 4

Evaluation on the risks involved in the investment

Question 5

Economics of Information

Answer 5

A systematic series of concepts and theories that explain the role which information and IT play to assist an organization

Question 6

Transaction cost theory (Coase’s Law)

Answer 6

To economize on transaction (internal/ external) costs
Explains the origin of firms

Question 7

Production

Answer 7

Technology of production is increasingly cost-effective as the scale grows

Question 8

Information

Answer 8

Information is not consumed by use, and can be used cost-effectively for larger scale of operation

Question 9

Network externalities

Answer 9

It becomes dominant as it increases market share or geographical scope

Question 10

Operation

Answer 10

IT increases scale and scope efficiencies of the firm’s operation

Question 11

Transaction processing

Answer 11

IT processes basic business transactions

Question 12

Monitoring/ performance

Answer 12

IT monitors, records, and evaluates performance of employees and their functions

Question 13

Documentation/ Communication

Answer 13

IT maintains records of status and change in the fundamental business functions within the organization

Question 14

Decision Support

Answer 14

IT collects and provides information relevant to managerial decision

Question 15

Why measure IT performance

Answer 15

To evaluate the functioning of an IT Investment, to assess the business value, efficiency and effectiveness of an IT

Question 16

Business Value of IT

Answer 16

Overall value of IT on the bottom line performance of an organization

Question 17

Return on Equity (ROE)

Answer 17

Measures profitability of the investment to the owners

Question 18

Return on Assets (ROA)

Answer 18

Measures profitability and how efficiently assets were utilized

Question 19

Return on Investment (ROI)

Answer 19

Measures profitability based on total investment, both debt and equity

Question 20

Return on Sales (ROS)

Answer 20

Measures profitability based on sales

Question 21

Earnings per share (EPS)

Answer 21

Measures earnings per share value

Question 22

Revenue Growth

Answer 22

Measures growth in revenue over the prior period

Question 23

Sales by total assets

Answer 23

Measures how efficiently assets were used to generate sales

Question 24

Sales by employee

Answer 24

Measures sales ability effectiveness

Question 25

Inventory turnover

Answer 25

Measures the liquidity of inventory and how fast it is sold

Question 26

Cost Index

Answer 26

Ratio of cost today to cost in the past

Question 27

CER

Answer 27

Cost-estimating Relationship - Used in early design stages to estimate plant, equipment and construction cost - Based on design variables

Question 28

2 commonly used CERs

Answer 28

- Cost capacity Equation - Factor Method

Question 29

Factor Method

Answer 29

Estimating Total plant cost - Direct/ indirect cost can be included

Question 30

Delivered-equipment cost

Answer 30

Purchase cost of major equipment

Question 31

Installed-equipment cost

Answer 31

Equipment cost plus all make-ready costs

Question 32

Cost Factor

Answer 32

Commonly the sum of a direct cost/ indirect cost component

Question 33

Cost center

Answer 33

Department, function, or process used by the cost accounting system to collect direct/indirect costs - Receive allocation

Question 34

Indirect-cost rate

Answer 34

Traditionally, a predetermined rate is used to allocate indirect costs to a cost center using an specified basis

Question 35

Activity-based costing

Answer 35

Provides excellent allocation strategy and analysis of costs - More advanced, high overhead, technology-based systems

Question 36

Depreciation Terminology

Answer 36

Book (noncash) method to represent decrease in value of tangible asset over time - 2 types ○ Book Depreciation ○ Tax Depreciation - Both can be calculated using ○ Straight line ○ Declining balance ○ Unit of production

Question 37

Book Depreciation

Answer 37

Used for internal accouting to track value of assets

Question 38

Tax depreciation

Answer 38

Used to determine taxes due based on tax laws

Question 39

Depreciation

Answer 39

Reduction in value of an asset

Question 40

Depreciation accounting

Answer 40

- Distribute the Cost - Proces of allocation, not valuation - Portion of the total charge