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

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.

Afirm's before-tax cost of debt, rd, is the interest rate that the firm must pay on debt. because interest is tax deductible, the relevant cost of debt used to calculate a firm's wacc is the cost of debt, rd (1 – t). the cost of debt is used in calculating the wacc because we are interested in maximizing the value of the firm's stock, and the stock price depends on cash flows. it is important to emphasize that the cost of debt is the interest rate on debt, not debt because our primary concern with the cost of capital is its use in capital budgeting decisions. the rate at which the firm has borrowed in the past is because we need to know the cost of capital. for these reasons, the on outstanding debt (which reflects current market conditions) is a better measure of the cost of debt than the . the on the company's -term debt is generally used to calculate the cost of debt because more often than not, the capital is being raised to fund -term projects. quantitative problem: 5 years ago, barton industries issued 25-year noncallable, semiannual bonds with a $1,600 face value and a 8% coupon, semiannual payment ($64 payment every 6 months). the bonds currently sell for $845.87. if the firm's marginal tax rate is 40%, what is the firm's after-tax cost of debt? round your answer to 2 decimal places. do not round intermediate calcu

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