I need help with this finance / accounting question/problem. The problem is attached in a word doc.
General Phone Apps (GPA) is evaluating a proposal to internally develop a
software capability that is intended to enhance their application (app)
development process by automating testing and simplifying product
conversion among different operating systems. Since it will be cloud based, it
also will facilitate group development projects and enable employees to
more easily work from different locations. This is not a product to be sold, but
rather it will assist internal development of their app software, so it is
The development and conversion process is estimated to take one year in
year 0, and cost $1,000,000. This investment includes all programming
training, loading of existing products and testing the resulting conversion. An
internal prototype has been completed that evaluated the feasibility and
created a macro design of the proposed system (sunk costs).
The estimated data for the proposal is shown below:
(Dollars in thousands of $)
Revenue without new software
Revenue With new software
Marketing & Sales
Depreciation %. 3 year MACRS
The above costs are only for the proposal and will not be incurred if the
proposal is rejected. A three-year time horizon is to be used for the
evaluation, although the software is expected to be used much longer. Threeyear MACRS depreciation has been chosen for the projects development and
Note that the evaluation of the proposal is based on the difference that
the proposal will make, since the goal is to evaluate the proposal.
Submit a spreadsheet containing an Income Statement that shows the
change in income resulting from this proposal. Use the standard Income
statement format that includes totals for COGS, SG&A, EBIT and Net
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