Software project decision point.

You need to determine an interest rate to use$-$select an interest rate and explain why you think this number should be

used. Use it in your calculations below in question $2.$

Given the information below on options $1$ and $2,$ carry out three forms of analysis: breakeven, ROI, and NPV$.$

Make a recommendation on which way to proceed, based on the TCO for each option.

Option $1$: Purchase the FunSoft package: Cost $$200,000$ for software and $$85,000$ for hardware in year one; with $$50,000$ to

customize it and a $$40,000$ annual licensing fee for the life of the contract. There will be an annual saving of $$61,000$ due to the

layoff.of a clerk.

Option $2$: Purchase the SoftComm package, which will operate on the vendor's hardware: Cost $$250,000$ for a five$-$year licens

payable half up front and half during the first year of implementation. The maintenance contract, at $$75,000$ a year, includes a

currently identified modifications to the software for the first three years. The clerk's hours will be cut by half, for a saving of

$$25,000$ a year.

In both cases, sales are expected to increase from the current $$1$ million a year, by $10\%$ per year each year $($over each year's

previous year's sales$)$ after full implementation.

Assume a five$-$year life for the software.