Interglobal 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 are as follows:

Year Proposed System Costs Present System Costs

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Year 1

Equipment Lease $20,000 $11,500

Salaries 30,000 50,000

Overhead 4,000 3,000

Development 30,000 0

Year 2

Equipment Lease $20,000 $20,700

Salaries 23,000 55,000

Overhead 4,400 5,300

Development 12,000 10,000

Year 3

Equipment Lease $20,000 $30,500

Salaries 36,000 60,000

Overhead 4,900 3,600

Development 0 0

Year 4

Equipment Lease $20,000 $10,500

Salaries 39,000 46,000

Overhead 5,500 4,000

Development 0 0

a. Using break-even analysis, determine the year in which Interglobal Paper will break even.

b. Graph the costs and show the break-even point.

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