Introduction
Three Structural engineers, Huey, Luey, and Stan created HLS.The firm has been involved with industrial and commercial workrelated to the construction facilities. They have designed heatingand ventilation systems for factories and shopping malls, pipingfor refineries and chemical plants, and even a treatment facilityfor oil tanker ballast water.
When HLS first started, most of the work was subcontracts forheating and ventilation systems for individual buildings. The scopeof work has increased over the years as well as the staff. The firmnow employs 30 engineers including the original 3 founders. HLSstill generally works as a subcontractor to other design firms.Presently, the three owners are content and do not want todiversify into the other branches of engineering or become moregeneralized.
Almost all of the analysis and technical drawings are done withan ever-increasing array of software packages. This presents anissue for HLS moving forward. The current system seems to be haveissues keeping pace with the demands of work. As a result, HLS haslost $90,000 worth in jobs because of not working with updatedsoftware.
The specific package that is being sought is offered by Scroogeindustries. The initial cost would be $50,000 and would have anannual fee of 15%. This fee covers service, answering questions,and periodic updates. Another $60,000 would be needed for asoftware integration. The training for the program is estimated tobe $24,000, and one sixth of that would be an annual upkeep cost.This program is expected to have a life expectancy of 10 years.
If the software does prove practical, the next step would be tofind out how to finance it. HSL have come up with 2 main sources todraw income. The first is to offer stock to employees. The secondwould to take out a loan from the bank.
Option A would be to offer stock options to the employees. SinceHSL cannot set up the plan as a profit share (there is no money toshare) employees would take part of their pay as stock. Then HSLwould match on a one-for-four basis. Example: someone who set aside$2000 would be credited with $2500 in stock at the end of the year.It can be assumed that half of the employees (15) would participatewith an average of $100 per month per employee.
Option B would be getting a loan from the bank. The maximumamount the bank would loan HSL would be $140,000 at 15% over threeyears or less. If more is needed, it will cost HSL $9,000 in feesfor securing the loan and an additional 1% interest on top ofit.
Recommendations
The recommendation is to get the software.
Analysis:
- Determine which method would be best to pay for thesoftware
