EPON (Ethernet Passive Optical Network) is a new technology for access network based on Ethernet protocol. In this paper, a system model is established to simulate the EPON system. The different noise sources that affect the system performance are taken into account, including 1ST, MIPN, RIN, Extinction Ratio, etc. Not only the system performance degradation induced by burst-mode reception but also the requirement and effect of FEC are considered. The optimal system parameters are found to achieve a tradeoff between system performance and cost. At last, a technical scheme technically and economically feasible for China is put forward. More attention is paid to the burst mode operation which leads to the system performance degradation. A theoretical model is adopted to determine the sensitivity penalty caused by burst mode reception.