Return on Software – Errata

This page shows the list of known errors in the book. If you find any errors that aren’t listed here, please send e-mail to steve.tockey@construx.com to let me know about it. Known errors are organized by chapter and listed in page order.

Inside Front Cover

• No known errors.

Front Matter (through Preface)

• No known errors.

Chapter 1: Return on Software

• No known errors.

Chapter 2: Business on Purpose

• Page 21, Self-study question #5 – The terms “Direct Labor”, “Direct Material”, “Indirect Expenses”, “Operating Expenses”, and “Investment Related Costs” aren’t defined in this chapter. They are defined in Chapter 15: General Accounting and Cost Accounting. Nonetheless, this question should be asking for the kinds of information commonly found on Balance Sheets and Cash Flow Statements.

Chapter 3: Fundamental Concepts of Business Decisions

• Page 24, third bullet under “Cash-flow Instances and Cash-flow Streams” – not everybody understands that “points” are prepaid interest used to buy down the interest rate on a loan. This should be better explained or removed (i.e., use a different example).
• Page 26, second paragraph after “Cash-flow Diagrams” – “A cash-flow diagram shows a cash-flow stream two dimensions” needs to be changed to “A cash-flow diagram shows a cash-flow stream in two dimensions”.
• Page 29, first line after the shaded discussion of Agile – “amounts(s)” needs to be changed to “amount(s)”.
• Page 33, Self-study question #2 – The question needs to ask for an example of EACH of the (five) different categories. The current wording could be interpreted as asking for only one example.

Chapter 4: The Business Decision-Making Process

• Page 36, third paragraph – add “from a decision as big as should a project be done at all”.

Chapter 5: Interest: The Time Value of Money

• Page 54, last paragraph of Single-Payment Compound-Amount (F/P) – the example in Table 5.3 is for a $1k investment, not a $10k investment.
• Page 64, the highlighted text after Equal-Payment-Series Capital-Recovery (A/P) – the wrong statement got highlighted. “This is the standard formula for computing payments on a loan” should be highlighted.

Chapter 6: Other Interest(ing) Calculations

• • Page 84, Nth root formula (second equation down from the top) – the natural log function (ln(x)” appears to be using a capital “I” instead of a lowercase “L”.
  • Page 88, top formula on the page – the text over the parentheses reads “P/A,i,n 1 1”. It should read “P/A,i,n-t+1”.
  • Page 89, BEE Co.’s APR must be 6.2% for their monthly interest rate to be 0.5%
  • Page 95 and 96, Self-study questions #11 through #14 – by a strict interpretation of the statement “interest is only paid on money that’s been on deposit for the full interest period” (page 79), the initial deposit should not be counted as bearing interest in the first interest period. Either the question needs to be clarified or, for example, the solution to question 11 should be:

• Page 96, Self-study question #17 – either the question needs to be changed to “two years and one month” or the answer needs to be changed to:

Chapter 7:

• Page 106, Self-study question #1 – the $80 label for the year 8 cash-flow instance should be moved closer to the top of that line. It wouldn’t hurt to move the $100 label for the year 9 cash-flow instance up a bit as well.

Chapter 8:

• Page 113, Table 8.3 – the (P/F,9,0) factor on the first line is “1.000”, it should be “1.0000” to make it match the precision of the remaining factors in the table.
• Page 114, Figure 8.2 – the X-axis intercept point in the drawing is too close to 20%. It should be closer to 18%.

Chapter 9:

• No known errors.

Chapter 10:

• • Page 142, top bullet in the list of items influencing the MARR – this should also include the overall profitability of the company. If the company’s profit margin is X% then the MARR should probably not be less than X%.
  • Page 154, just above the Summary – should add the following brief explanation: The IRR is point where the PW(i) function crosses zero. That function is an n-th order polynomial so it can have any shape (slope). Just because it’s got a farther out IRR, doesn’t mean it’s necessarily a higher PW(i) at the MARR. This is shown in the following diagram:

Chapter 11:

• No known errors.

Chapter 12:

• Page 174, last sentence in the second paragraph – the sentence could be misinterpreted as referring to fuel efficiency in general, not the efficiency of this car in particular, due to wear and tear.
• Page 174, second sentence in The Defender – “running on a midrange processor” should be changed to “running on midrange hardware”.
• Page 182, Self-study question #2 – the question needs to be reworded to emphasize that the lab MUST upgrade its facility. The “do nothing” option is not a valid option in this case.

Chapter 13:

• Page 201, Table 13.3 – the table is mislabeled, it’s not Mr. Kinkaid’s excellent adventure.
• Page 201, Table 13.4 – this is also not Mr. Kinkaid’s excellent adventure.
• Page 202, Planning a Retirement Using Constant Dollars – the inflation-free interest rate should be “0.047 = 4.7%” not “0.0047 = 4.7%”.

Chapter 14:

• Page 211, last paragraph – “This chapter explains depreciation as it is defined in the US” does not account for the possibility that tax law could change. “This chapter explains depreciation as it was defined in the US when this book was published” would be more accurate.
• Page 227, Table 14-11. MACRS Prescribed Method Depreciation Schedule – the year 6 depreciation amount for 7-year property is 0.0892 not 0.0893
• Page 231, Self-study Questions 8 through 14 – the setup is confusing. MACRS uses a 5-year useful life on computer equipment but the problem statement implies using a 10-year useful life even though it’s computer equipment. This needs to be clarified.

Chapter 15:

• Page 238, bullet on Cost of Goods Sold – add the clarification that the Cost of Goods Sold in a software organization could include, for example, costs of embedded product licenses. If a company’s product layers on top of a commercial database package, for example, selling a copy of the product could incur the cost of another database license (assuming the customer didn’t already have licenses).
• Page 241, sentence “Gizmo Corporation generated $1,152,000 though company operations during the reporting period.” – need to change “though” to “through”.
• Page 261, Self-study question #6 – The Sales & Operating income needs to be 320K for this question to match the answer in Appendix F, not 240K.
• Page 262, Self-study question #7 – Direct Labor Applied needs to be $624 (not $642) to match the answer in Appendix F.

Chapter 16:

• Page 265, somewhere in the chapter content – the text needs to straighten out the issue of initial investment from outsider’s viewpoint (replacement analysis) NOT being the same from an actual (or income-tax) cash-flow perspective.
• Page 276, the last sentence before the Summary – the text says “put into columns (C) and (D)” needs to be “put into columns (D) and (F)”.

• Page 282, last sentence before Depreciation Methods and Income Taxes – the IRR on the corporate bond is $363/$5k = 7.26%.
• Page 288, first sentence after “Comparing Financing Methods in After-tax Cash-flow Terms” – “When a company wants to buy an asset…” would be better stated as “When a company wants to acquire an asset…”.
• Page 292 – the formula “(1-48%) x 2% = 6.24” needs to be “(1-48%) x 12% = 6.24”.
• Page 294, Self-study questions #5 through #8 – the set up should be more explicit about asking that the work be shown.
• Page 295, Self-study question #12 – note that the approach really only works with service alternatives. It’s shown here incorrectly because this situation is a revenue alternative.

Chapter 18

• No known errors.

Chapter 19:

• Page 324, last formula on the page – it says, “C under Plan C = $20 + $1.50 * T”. It needs to say, “Cost under Plan C = $20 + $1.50 * T”.
• Page 326, the section on General Case Break-even Analysis – the section is written in terms of “cost functions”, it needs to refer to “objective functions” instead.

Chapter 20:

• Page 339, Self-study question #4 – these equations lead to negative execution times when evaluated at their optimum points.

Chapter 21:

• No known errors.

Chapter 22:

• No known errors.

Chapter 23:

• Chapter heading – the chapter heading (on even pages) says, “Part Six Estimation, Rick, and Uncertainty”. Change “Rick” to “Risk”.
• Page 389, Table 23.2 – the cash-flow instances shown as “$1100” need to be “$11,000”.
• Page 410, Self-study question #6 – the answer key is wrong because it uses the interest rate per year incorrectly as an interest rate per month. A revised solution needs to be created.

Chapter 24:

• No known errors.

Chapter 25:

• No known errors.

Chapter 26:

• Page 452, second paragraph – the sentence “the one described here has the advantage that it >is< separates dimensionalizing” needs to have the word “is” removed.

Chapter 27:

• Page 469, “Evaluate Each Solution Against the Evaluation Criteria” – the sentence “it will be necessary to develop the cash-flow stream for each solution described in Chapter 3” should read “it will be necessary to develop the cash-flow stream for each solution described >as< in Chapter 3” (add the word “as” before the words “in Chapter”).
• Page 470, “The Primary Message” – the question of RUP vs. XP is one question, not two. Need to remove the two quotes between them.

Appendix A:

• No known errors.

Appendix B:

• No known errors.

Appendix C:

• No known errors.

Appendix D:

• Page 529, last three formulas on the page – all three have a typo in that the “arc” is italicized and it shouldn’t be.

Appendix E:

• Page 540, just after the first formula on the page – the text “is one of the possible outcomes” should not be italicized.

Appendix F:

• • Page 551, answer to Chapter 7 Self-study question #1 – needs to be “$50(P/A,6,4)(P/F,6,4)”. That’s $50*3.4651*0.7921 = $137. This changes the final answer from $135 to $127.
  • Page 551, answer to Chapter 7 Self-study question #6 – the answer should be:

• Page 561, answer to Chapter 14 Self-study question #2 – the computation of the depreciation factor (alpha) is shown as “2.00/5 = 0.” It needs to be “2.00/5 = 0.4”. The “4” is missing after the decimal point”.
• Page 574, answer to Chapter 23 self-study question #5 – the least favorable = -$224,123 and the most favorable = $185,263. The fair outcome is correct.
• Page 575, answer to Chapter 24 Self-study question #3 – the PW(i) of repeal in the first year is -$32,456 (not -$32,556) so the PW(i)*probability is -$3246 and the total is -$248.

Appendix G:

• No known errors.

References

• Page 606, the reference to [vonOesch98] – it should be [vonOech98] and his name is Roger von Oech. There’s one to many s’s in his name.

Index:

• Page 611, index entry for CR(i) – the text “(capital recovery with returns“ has an extra “s” and is missing a “)”. It should be “(capital recovery with return)“.

Inside Back Cover

• No known errors.