1. Award: 10.

00 points

In making the business case for an IT investment, companies should assess the sensitivity of results
to the assumptions.

 True

 False

References

True / False Difficulty: 2 Medium Learning Objective: 17-01 Articulate

similarities and differences between
major IT initiatives and other capital
investments.

2. Award: 10.00 points

The appropriate cost of capital to use in valuing an IT project is the same regardless of the project
riskiness.

 True

 False

References

True / False Difficulty: 2 Medium Learning Objective: 17-01 Articulate

similarities and differences between
major IT initiatives and other capital
investments.
3. Award: 10.00 points

Capital budgeting techniques provide precise estimates on an IT projects costs and benefits.

 True

 False

References

True / False Difficulty: 2 Medium Learning Objective: 17-01 Articulate

similarities and differences between
major IT initiatives and other capital
investments.

4. Award: 10.00 points

Net present value techniques compute the unique rate of return for a particular IT project.

 True

 False

References

True / False Difficulty: 1 Easy Learning Objective: 17-01 Articulate

similarities and differences between
major IT initiatives and other capital
investments.
5. Award: 10.00 points

One weakness of the internal rate of return financial metric is that larger projects tend to have
higher internal rates of return.

 True

 False

References

True / False Difficulty: 2 Medium Learning Objective: 17-06 Apply capital

budgeting techniques to assess the value
proposition for an IT initiative.

6. Award: 10.00 points

The value proposition step in the analysis of an IT initiative should focus on five questions, including
the timing of expected benefits.

 True

 False

References

True / False Difficulty: 2 Medium Learning Objective: 17-02 Explain the

major steps in the economic justification
of an IT initiative.
7. Award: 10.00 points

The benefits of an IT project are not necessarily measurable in financial terms.

 True

 False

References

True / False Difficulty: 2 Medium Learning Objective: 17-03 Explain

potential benefits of IT initiatives and how
to evaluate them.

8. Award: 10.00 points

Benefits are often estimated without complete information.

 True

 False

References

True / False Difficulty: 2 Medium Learning Objective: 17-03 Explain

potential benefits of IT initiatives and how
to evaluate them.
9. Award: 10.00 points

The business case for an IT project does not need to address risk, since risk will be factored into the
discount rate.

 True

 False

References

True / False Difficulty: 2 Medium Learning Objective: 17-05 Describe

potential risks of IT initiatives and
corresponding risk-mitigation techniques.

10. Award: 10.00 points

Time that employees devote to self-training on new technology is an example of direct operating
costs.

 True

 False

References

True / False Difficulty: 2 Medium Learning Objective: 17-04 Assess

potential costs of IT initiatives and how to
evaluate them.
11. Award: 10.00 points

Which of the following is not a reason that large IT projects require economic justification?

 IT is a commodity, every firm makes IT investments

 IT investments require large amounts of capital

 Capital resources are limited

 Major IT projects can affect substantial portions of the organization

References

Multiple Choice Difficulty: 2 Medium Learning Objective: 17-01 Articulate

similarities and differences between
major IT initiatives and other capital
investments.

12. Award: 10.00 points

Which of the following is not a question that businesses should answer before making major IT
investments?

 What key business issues does it address?

 What are the risks of doing the project?

 How will success be measured?

 None of the choices are correct.

References

Multiple Choice Difficulty: 2 Medium Learning Objective: 17-01 Articulate

similarities and differences between
major IT initiatives and other capital
investments.
13. Award: 10.00 points

Which of the following is not a major consideration when assessing business requirements for IT
initiatives?

 Complementary business process changes

 Potential technological solutions

 Gaps in performance indicated by the strategy map

 Project risks

References

Multiple Choice Difficulty: 2 Medium Learning Objective: 17-02 Explain the

major steps in the economic justification
of an IT initiative.

14. Award: 10.00 points

Which of the following is not a direct acquisition cost of an IT initiative?

 Cost of hardware

 Cost of business disruption

 Cost of project management

 Cost of software development

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-03 Explain

potential benefits of IT initiatives and how
to evaluate them.
15. Award: 10.00 points

Which of the following is not a direct operating cost of an IT initiative?

 End-user data management

 Ongoing hardware replacement

 Software upgrades

 Hardware disposal

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-03 Explain

potential benefits of IT initiatives and how
to evaluate them.

16. Award: 10.00 points

Which of the following is not a potential benefit of an IT investment?

 Revenue enhancement

 Revenue savings

 Cost avoidance

 Revenue protection

References

Multiple Choice Difficulty: 2 Medium Learning Objective: 17-03 Explain

potential benefits of IT initiatives and how
to evaluate them.
17. Award: 10.00 points

Which of the following is the least effective approach to quantifying expected benefits of an IT
project?

 Find out what other firms experienced in similar situations

 Review options with the hardware vendor

 Consult with experts

 Use simulation software

References

Multiple Choice Difficulty: 2 Medium Learning Objective: 17-03 Explain

potential benefits of IT initiatives and how
to evaluate them.

18. Award: 10.00 points

Which of the following is an example of project risk?

 The technology will not work as expected.

 The IT project is not aligned with the company's strategy.

 The financial benefits may not be delivered.

 The IT project may exceed budget.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-05 Describe

potential risks of IT initiatives and
corresponding risk-mitigation techniques.
19. Award: 10.00 points

Which of the following is an example of solution risk?

 The solution is not aligned with the company's strategy.

 The solution will not generate projected benefits.

 The solution will be delayed.

 Employees are unwilling to make the necessary changes.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-05 Describe

potential risks of IT initiatives and
corresponding risk-mitigation techniques.

20. Award: 10.00 points

Which of the following is the best approach to mitigate alignment risk?

 Assure top management support.

 Conduct training and provide incentives.

 Use the balanced scorecard framework.

 Use sensitivity analysis.

References

Multiple Choice Difficulty: 2 Medium Learning Objective: 17-05 Describe

potential risks of IT initiatives and
corresponding risk-mitigation techniques.
21. Award: 10.00 points

Which of the following would not help mitigate change risk?

 Conduct training.

 Incent employees to learn new system.

 Reduce employee costs.

 Communicate changes to employees.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-05 Describe

potential risks of IT initiatives and
corresponding risk-mitigation techniques.

22. Award: 10.00 points

If the implementation costs greatly exceed the expected cost, the firm may have not done an
appropriate job assessing which type of risk?

 Financial Risk.

 Implementation Risk.

 Cost Risk.

 Technological Risk.

References

Multiple Choice Difficulty: 2 Medium Learning Objective: 17-05 Describe

potential risks of IT initiatives and
corresponding risk-mitigation techniques.
23. Award: 10.00 points

By having a software vendor present a proof of concept, a firm is trying to mitigate which risk?

 Project Risk.

 Solution Risk.

 Feasibility Risk.

 Technological Risk.

References

Multiple Choice Difficulty: 2 Medium Learning Objective: 17-05 Describe

potential risks of IT initiatives and
corresponding risk-mitigation techniques.

24. Award: 10.00 points

Organizations have developed techniques for evaluating IT projects for several reasons. Which of
the following is not one of those reasons?

 Selecting one investment often means forgoing other potentially value-increasing

investments.

 IT projects change regularly.

 IT projects often require large amounts of capital, and for most firms, capital resources are
limited.

 IT projects often involve changes in business processes that will affect substantial portions
of the organization.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-01 Articulate

similarities and differences between
major IT initiatives and other capital
investments.
25. Award: 10.00 points

IDC estimates that what percent of IT spending is in the form of capital expenditures?

 25%.

 40%.

 70%.

 95%.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-01 Articulate

similarities and differences between
major IT initiatives and other capital
investments.

26. Award: 10.00 points

The International Federation of Accountants recommends creating a business case for an IT

investment. Which of the following is not a question the business case should answer?

 What are the alternatives?

 How will we fund the investment?

 What are the risks of not doing the project?

 Why are we doing this project?

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-02 Explain the

major steps in the economic justification
of an IT initiative.
27. Award: 10.00 points

For a firm considering AIS and IT initiatives, accountants can play an important role in which of the
following ways?

 Testing business case controls.

 Memorializing the business case.

 Developing and reviewing the business case for the initiatives.

 Entering transactions into the new system.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-02 Explain the

major steps in the economic justification
of an IT initiative.

28. Award: 10.00 points

The economic justification process for a new IT initiative includes all of the following except:

 Allocate funds for the recommended option.

 Evaluate potential costs, benefits, and risks for each option.

 Identify potential solutions.

 Develop value propositions for each option.

 Assess the business requirements.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-02 Explain the

major steps in the economic justification
of an IT initiative.
29. Award: 10.00 points

In addition to technology, which of the following is required in order that a firm may achieve desired
business process improvements for its IT investment?

 Other enabling (complementary) changes.

 Software configuration.

 The Balanced Scorecard and associated strategy map.

 Business Intelligence.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-02 Explain the

major steps in the economic justification
of an IT initiative.

30. Award: 10.00 points

Which of the following is not one of the potential approaches to quantifying the expected benefits
of IT initiatives?

 Real option theory.

 Simulation.

 External benchmarks.

 Expert opinion.

 Performance futures theory.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-03 Explain

potential benefits of IT initiatives and how
to evaluate them.
31. Award: 10.00 points

Benefits of IT initiatives should be measured in comparison to which of the following?

 The amount of information available.

 Current inputs of the existing IT processes.

 Revenues and costs that will occur without implementing the initiative.

 Non-financial aspects of the project.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-03 Explain

potential benefits of IT initiatives and how
to evaluate them.

32. Award: 10.00 points

Which of the following would not be considered an indirect operating cost for an IT initiative?

 End user data entry.

 User self-training.

 User peer support.

 End user data management.

References

Multiple Choice Learning Objective:

17-03 Explain
potential benefits of
IT initiatives and
how to evaluate
them.

Difficulty: 1 Easy Learning Objective:

17-04 Assess
potential costs of IT
initiatives and how
to evaluate them.
33. Award: 10.00 points

Acquisition costs for an IT initiative include all of the following except:

 Software licenses.

 Training.

 Maintenance fees.

 Project management.

References

Multiple Choice Learning Objective:

17-03 Explain
potential benefits of
IT initiatives and
how to evaluate
them.

Difficulty: 1 Easy Learning Objective:

17-04 Assess
potential costs of IT
initiatives and how
to evaluate them.

34. Award: 10.00 points

Which of the following risks considers the possibility that the new IT system will not be implemented
on time or within budget?

 Solution risk.

 Change risk.

 Alignment risk.

 Project risk.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-05 Describe

potential risks of IT initiatives and
corresponding risk-mitigation techniques.
35. Award: 10.00 points

After identifying the relevant risks associated with an IT initiative, which of the following is not
something that the project team should consider regarding each risk?

 The financial impact of the risk scenario occurring.

 The probability of the risk scenario occurring.

 The potential benefits of the risk scenario occurring.

 The cost of mitigating the risk.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-05 Describe

potential risks of IT initiatives and
corresponding risk-mitigation techniques.

36. Award: 10.00 points

Which of the following is the formula for payback period?

 Increased cash flow per period / initial investment.

 Initial investment / increased cash flow per period.

 CFt / (1 + r)t

 (Average annual income from IT initiative) / (Total IT initiative investment cost).

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-06 Apply capital

budgeting techniques to assess the value
proposition for an IT initiative.
37. Award: 10.00 points

Which of the following is a key advantage of the Net Present Value metric for evaluating an IT
initiative?

 It relates estimates using accrual accounting.

 It is easy to calculate.

 It considers the time value of money.

 It is sensitive to the discount rate applied.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-06 Apply capital

budgeting techniques to assess the value
proposition for an IT initiative.

38. Award: 10.00 points

When considering the sensitivity of estimates used to evaluate IT initiatives, which of the following
are you likely to do?

 Use multiple metrics to evaluate each IT initiative.

 Test the impact of changes in assumptions on the various financial metrics.

 Consider which groups in the organization will benefit.

 Develop exact quantifications of costs and benefits.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-06 Apply capital

budgeting techniques to assess the value
proposition for an IT initiative.
39. Award: 10.00 points

Which of the following is the order of tasks when evaluating AIS Investments?

 Develop the Business case→Define Business Requirements→Estimate Benefits→Estimate

Costs→Asess Risks→Prepare the value proposition.

 Develop Financials→Estimate Benefits→Estimate Costs→Asess Risks→Prepare the value

proposition.

 Obtain management support→Estimate Benefits→Estimate Costs→Asess Risks→Prepare

the value proposition.

 Develop the Business case→Define Business Requirements→Estimate Benefits→Estimate

Costs→Asess Risks→Implement.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 17-06 Apply capital

budgeting techniques to assess the value
proposition for an IT initiative.

40. Award: 10.00 points

Explain why it is easier to assess the costs of an IT project than to assess the benefits. What factors
complicate the cost estimates? What factors complicate the benefits estimates? Do the risks
associated with the project primarily affect the costs or the benefits? Why?

Open ended.

References

Essay Difficulty: 3 Hard Learning Objective: 17-05 Describe

potential risks of IT initiatives and
corresponding risk-mitigation techniques.
41. Award: 10.00 points

Pacific Green Company is considering buying a unique bar-coding machine to help them track their
plant inventory. They are using the payback period and accounting rate of return methods to
evaluate the purchase. They will consider the project further if the payback period is less than four
years and it has a minimum accounting rate of return of 7%. Relevant information on the machine is
as follows:

Acquisition cost = $48,000

Expected salvage value = $0
Expected annual cash inflow benefits = $13,000 per year for 5 years
Expected useful life = 5 years

Required:
Compute the payback period and ARR. Advise GPC on their appropriate action.

Payback period = $48,000/$13,000 = 3.7 years

ARR = ($13,000 - $9,600 depreciation expense)/$48,000 = 7.1%
It meets the thresholds for further evaluation

References

Essay Difficulty: 3 Hard Learning Objective: 17-05 Describe

potential risks of IT initiatives and
corresponding risk-mitigation techniques.
42. Award: 10.00 points

Yellow Duck Brewery is considering two similar technology investments to help track production.
Investment (1) has an NPV of $245,000 and a payback period of 3 years. Investment (2) has an NPV
of $250,000 and a payback period of 4.25 years. Which investment would you advise them to
choose? Why?

(open ended but they should address the decreased risk connected with the shorter payback
period despite the slight difference in NPV).

References

Essay Difficulty: 3 Hard Learning Objective: 17-05 Describe

potential risks of IT initiatives and
corresponding risk-mitigation techniques.
43. Award: 10.00 points

Pacific Green Company is considering buying a unique bar-coding machine to help them track their
plant inventory. They evaluated the payback period and accounting rate of return and selected the
project for further evaluation. Relevant information on the machine is repeated as follows:

Acquisition cost = $48,000

Expected salvage value = $0
Expected annual cash inflow benefits = $13,000 per year for 5 years
Expected useful life = 5 years

Required:
Compute the net present value of the project assuming a discount rate of 16%. Use EXCEL to
compute the internal rate of return. Advise PGC on the best course of action with respect to the
investment.

NPV is negative
IRR is approximately 11% (and below GPC’s hurdle rate)
Do not invest

References

Essay Difficulty: 3 Hard Learning Objective: 17-05 Describe

potential risks of IT initiatives and
corresponding risk-mitigation techniques.
44. Award: 10.00 points

Cooper Automotive is considering expanding, but to do so, they need to invest in new systems
expected to cost $1,000,000. They estimate the salvage value to be $0 at the end of 10 years, so
depreciation will be $100,000 per year. They estimate that profits will increase by $250,000 per
year. Coop’s cost of capital is 10%.

Required:
Compute the payback period, the accounting rate of return, the net present value, and the internal
rate of return. Advise Coop on whether he should invest. Would your advice change if the increase
in profits is only $175,000 per year?

At $250,000 annual incremental profit:

Payback is 4 years;
ARR is 17%;
NPV is ~$500,000;
IRR is 21%.
Invest

At $175,000 annual incremental profit:

Payback increases to almost 6 years;
ARR drops to 7.5%;
NPV decreases to ~$75,000;
IRR decreases to 12%.
Advise evaluating the sensitivity of the estimates to changes in assumptions.

References

Essay Difficulty: 3 Hard Learning Objective: 17-05 Describe

potential risks of IT initiatives and
corresponding risk-mitigation techniques.