TaxPlan Solutions, a software firm, has developed a software product that enables users to electronically prepare and file their state and federal tax returns. TaxPlan traditionally has sold a stand-alone version that users install on their personal computers. This year, the firm's marketing director wants to offer a stripped-down version of the product via the Internet, in addition to offering the stand-alone version. The modified Internet version will allow users to prepare and file their tax returns using the World Wide Web. The product, which meets the needs of 75% of tax-filers, will be offered to all for free. Moreover, the marketing director feels that the Web-based product will allow TaxPlan to market itself as a company that seeks to help the "person on the street" and, hopefully, also lead to some financial benefits.

TaxPlan has provided you with the following information:

• TaxPlan already has spent $500,000 in developing the Web-based tax-filing product. If TaxPlan decides to offer the product, then it expects to spend $420,000 each year (including this year) maintaining the servers, providing technical support, and so on.

• The marketing director believes that the free tax-filing offer will induce users to sample the convenience of electronically managing their personal finances. She believes that many users will like the process and, consequently, end up purchasing TaxPlan's software for managing personal finances. The personal finance software retails for $25. TaxPlan incurs variable costs of $1 per unit to produce, package, and distribute their personal finance software package. TaxPlan also incurs $1 million in fixed costs each year to maintain and market the personal finance software package.

• The marketing director believes that the Web-based tax-filing service will allow Tax Plan to collect names and contact information to be used for marketing purposes. She estimates that 80% of the 250,000 people expected to use the free software will not opt out of the mailing list. (The opt-out box is buried deep in the program and takes much effort to find.) Currently, TaxPlan buys names and contact information from bulk-mailers and other sources and pays $0.09 per usable name. Thus, the Webbased tax-filing product will allow TaxPlan to avoid paying for this service.

Required:

a. How many personal-finance software packages does TaxPlan Solutions need to sell to ensure that it covers at least the incremental costs associated with offering the Webbased tax-filing software? (Also, express this number as a proportion of the number of people expected to use the free Web-based tax-filing product.)

b. List two other factors that TaxPlan should consider in its decision regarding whether to introduce the free Web-based tax-filing product.

c. TaxPlan's chief financial officer wants to lobby the Internal Revenue Service (IRS) for a grant of $300,000 to develop and market the free Web-based tax-filing product.

Do you believe the federal government has a financial interest in whether TaxPlan offers such a product? Why or why not?