International Paper Company has asked for your help in comparing its present computer system with a proposed (new) system its board of directors would like to see implemented. Proposed system and present system costs as well as benefits of the proposed system are given below:

Year                            Proposed System Costs         Present System Costs

Year 1

Equipment Lease        $22,000                                   $11,500

Salaries                         33,000                                     50,000

Overhead                         4,400                                       3,000

Development                 33,000                                         —

Year 2

Equipment Lease        $22,000                                   $10,500

Salaries                         36,300                                     55,000

Overhead                         4,840                                       3,300

Development                 13,200                                         —

Year 3

Equipment Lease        $22,000                                   $10,500

Salaries                         39,600                                     60,000

Overhead                         5,390                                       3,600

Development                     —                                            —

Year 4

Equipment Lease        $22,000                                   $10,500

Salaries                         42,900                                     66,000

Overhead                         6,050                                       4,000

Development                    —                                             —

Benefits of the proposed system for International Paper Company are:

Year    Benefits

1          $60,500

2          82,500

3          88,000

4          93,500

Now you do: 

(a). Draw the graph for Break-Even analysis and indicate the break-even point on the graph. Determine the year in which Interglobal Paper Company will break even. 

(b) Draw the graph for payback analysis. Determine the year in which payback period begins.