R 9 Capital Budgeting and Other Long-Run Decisions REVIEW PROBLEM 1 Summit Maintenance Technology sells a software package that companies can use to manage their facility and equipment maintenance functions. Features include work order tracking, maintenance history reporting, repair history reporting, and parts inventory management. The software is used mainly by large organizations such as airports, manufacturing plants, office complexes, hospitals, and commercial bakeries. A unique aspect of Summit's product is that it has a very intuitive interface and can be accessed via the Web with Summit providing application servers, database servers, and security. Thus, firms that implement the system do not need to add information technology staff or equipment. Currently Summit is negotiating with Ogden National Airport, which has considerable maintenance challenges. For example, the airport has six employees whose sole job is relamping (i.e., replacing light bulbs). In total, the maintenance department at Ogden has 45 employees who maintain escalators, elevators, trams, lighting, and perform painting and other miscellaneous maintenance duties. Craig Bradley, a senior manager at Ogden National Airport, has held a series of meetings with Summit and has identified the following cost savings: 1. The company can avoid purchasing a server costing $10,000 next year. 2. Due to better tracking, parts inventory can be reduced. The effect on purchases is $30,000, $20,000, and $10,000 over the next 3 years. 3. The company will need one less maintenance employee with an annual salary and benefits of $60,000. 4. The company is currently paying $5,000 per year to upgrade its maintenance software. Craig anticipates that the charges to Ogden for software and consulting services will be as follows: Initial costs- $90,000 "program fee" plus $55,000 consultant charges for systems integration and customization of reports Ongoing costs- $14,000 annual program fee after the initial year plus $6,000 per year consulting charges for ongoing customization beyond the initial year Calculate the net present value (NPV), assuming a required rate of return of 15 percent. Also