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ChaPter 3 • ProjeCt management 97

Item Proposed System Costs Present System Costs
Year 1
Equipment lease $20,000 $11,500
Salaries 30,000 50,000
Overhead 4,000 3,000
Development 30,000 —
Year 2
Equipment lease $20,000 $10,500
Salaries 33,000 55,000
Overhead 4,400 3,300
Development 12,000 —
Year 3
Equipment lease $20,000 $10,500
Salaries 36,000 60,000
Overhead 4,900 3,600
Development — —
Year 4
Equipment lease $20,000 $10,500
Salaries 39,000 66,000
Overhead 5,500 4,000
Development — —

a. Using break-even analysis, determine the year in which Interglobal Paper will break even.
b. Graph the costs and show the break-even point.
11. The following are system benefits for Interglobal Paper Company (from Problem 10):
Year Benefits
1 $55,000
2 75,000
3 80,000
4 85,000
a. Use the costs of Interglobal Paper’s proposed system from Problem 10 to determine the payback
period. (Use the payback method.)
b. Graph the benefits versus the costs and indicate the payback period.
12. Glenn’s Electronics, a small company, has set up a computer service. The table that follows shows
the revenue expected for the first five months of operation, in addition to the costs for office remodel-
ing and so on. Determine the cash flow and accumulated cash flow for the company. When is Glenn’s
expected to show a profit?
July August September October November
Revenue $35,000 $36,000 $42,000 $48,000 $57,000
Costs
Office remodeling $25,000 $8,000
Salaries 11,000 12,100 $13,300 $14,600 $16,000
Training 6,000 6,000
Equipment lease 8,000 8,480 9,000 9,540 10,110
Supplies 3,000 3,150 3,300 3,460 3,630
13. Alamo Foods of San Antonio wants to introduce a new computer system for its perishable products
warehouse. The costs and benefits are as follows:
Year Costs Benefits
1 $33,000 $21,000
2 34,600 26,200
3 36,300 32,700
4 38,100 40,800
5 40,000 51,000
6 42,000 63,700