In a conversation that you have with the president of your company the topic of how to align HR goals with company-wide department incentive goals came up.The incentive program will be known as HRIP. You are tasked with the assignment from the president to develop a recommendation that focuses on a department specific pay incentive goal program that addresses production and non-production personnel.Literally every level in the company will receive incentive program compensation above and beyond their base pay for achieving stretch-goals that drive:

Top Line Revenue

Bottom Line Profitability

Improves Customer Satisfaction in a measurable way

Improves quality

Improves timeliness of product and service delivery and

Drive down costs.

It is understood that the new HRIP program must be self-funding and meet clearly defined funding objectives.Your recommendations will be discussed at the next executive offsite goal setting meeting.After much research you identified the following set of facts and assumption to work from.From this information you will develop an Executive Summary, Excel Financial Spreadsheet and a brief PowerPoint presentation.Below are the assumptions and questions that you need to work with and answer:

Below are the facts of the situation.

The cost of incentive compensation company-wide yearly payout will be $3,000,000

Initial Cost of Pay Incentive Goal Alignment software will be $350,000

Annual Software Maintenance Licensing will be $25,000

A Full Time HR Incentive Manager new hire is needed to drive the process ongoing, $80,000 plus benefits and bonus of $30,000

Outside consulting services of $100,000 year one

Customer satisfaction that translates into increased profitability will be $1,000,000

Customer satisfaction that translates into reduced customer attrition will result in $1,000,000 in reduced acquisition costs

Improvements in service and product quality will result in error rate reduction costs of $1,000,000

Reduction in product and service process timeliness will result in improved speed to market, reduced delivery timelines and faster billing that will save the company $250,000

Cost reduction savings will result in an additional savings of $850,000

Reduction in staff turnover based on comparable company programs to be 5% at a savings of $250,000

The Required Rate to have the project approved is 25% regardless of the WACC percentage

Assume a seven (7) year straight line depreciation on Initial and Setup Costs

Assume that the following cost of capital assumptions:

oLong Term Debt is weighted at 40% and costs 8%

oPreferred Stock is weighted at 15% and cost 15%

oCommon Stock is weighted at 45% and costs 20%

Questions:

oWhat is the initial cost of the new system plus setup costs, year zero not one year later

oWhat is the annual depreciation in dollars for the new system, using straight line depreciation

oWhat is the new operating expense per year

oWhat is the Pretax Income after subtracting the yearly operating expenses and yearly depreciation from the sum of the expense reductions or benefits gained

oWhat is 30% of the Pretax Income

oWhat is the Net Income after subtracting the 30% taxes from the Pretax Income

oAdding back the annual depreciation what is the Annual Cash Flow

oWhat is the WACC

oWhat is the Required Rate of Return

oWhat is the NPV

oWhat is the IRR

oWhat is the project breakeven in years

oWould you approve or decline the HRIP project from as financial perspective and why?

oNow as is often the case the Comptroller states that the Customer Satisfaction profitability savings appear to a be soft saving and not hard dollar saving and stated that she would feel more comfortable if the number was cut to $500,000.If so is the HRIP System worthy of approval with a 25% Required Return?

oAll calculated cells outside of the pre-formatted spreadsheet formulas must be documented in the Excel spreadsheet, in detail.