Paper Company has asked for your help in comparing its present computer system with a new one 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 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 Paper Company will break even.

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

period begins.