Question

11.1 A small business needs to purchase PAD system pattern-making (PAD) software. PAD charges $6,450 for a single-seat V6.0 lifetime license, plus a $1,500 per year maintenance fee for that license. The small business estimates that it will make an additional $2.790 per year in revenues due to the purchase of this software How many years will it take for the small business to break-even on the purchase given these cash flows? 11.2 It costs a man $120.00 dollars to buy the things that he needs to make hotdogs The city allows him to sell his hotdogs somewhere near the city hall. However the city charges him $0 49 dollars for each hotdog sold. Calculate his break-even point, if the price he charges for 1 hotdog is $2.99

Answer 1

(11.1)

Annual net benefit = Additional revenue - Maintenance fee = 2,790 - 1,500 = 1,290

Payback period (PBP) is the time by when cumulative annual net benefit becomes zero.

Year	Annual Net Benefit	Cumulative Annual net benefit
0	-6,450	-6,450
1	1,290	-5,160
2	1,290	-3,870
3	1,290	-2,580
4	1,290	-1,290
5	1,290	0

PBP = 5 years

NOTE: As HOMEWORKLIB Answering Policy, 1st question has been answered.