In this question the techniques of Break-Even analysis and Payback Analysis are used to evaluate the economic benefit of proposed (new) system against existing system. Based on the four years of cost and benefit data you will create graph for Break-Even Analysis and graph for Payback analysis. Problem description: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.