Question

pull yield! Suppose that your company contracts out its computer support to an outside firm. The support company charges $107 an hour, but offers two discount plans. With the Dynamic Discount Plan, you would pay a $2000 annual fee, but then only pay $60 per hour of tech support. With the Comprehensive Coverage Program, you pay $6000 annually, but are then hilled just $17.50 per hour. Calculate the payback period for each of these plans. Which has the shorter payback period compared to just paying by the hour? (See Exercises 16-17 for a continuation of this exercise). Bram, you only pays. With the .de firm. The D. Additional Exercises 16. Suppose that the tech support company from Exercise #15 also offers an Unlimited Limited Plan, which costs $10,000 per year but provides up to 80 hours of free support per year, with additional hours beyond this billed at $20 per hour. Calculate the payback period for this plan compared with paying by the hour.

Answer 1

15. pay back period for plan = fixed costs / (non discount charge - discount charge)

	dynamic discount plan	comprehensive coverage plan
payback period	($2000 / (107-60)	$6000/(107-17.50)
	42.55 hours (can be rounded to 43 if needed)	67.04 hours (can be rounded to 67 if needed)

Dynamic discount will have shorter payback period.

16.In this case pay back period will be = 80 free hours + [$10,000-($107*80 hours)] / ($107-$20)

=>80 +[1440/87]

=>80+16.55

=>96.55 hours.

(can be rounded to 97 if needed).