Tiger Computers, Inc., of Singapore is considering the purchase of an automated

Question

Tiger Computers, Inc., of Singapore is considering the purchase of an automated etching machine for use in the production of its circuit boards. The machine would cost $910,000. (All currency amounts are in Singapore dollars.) An additional $660,000 would be required for installation costs and for software. Management believes that the automated machine would provide substantial annual reductions in costs, as shown below:

     The new machine would require considerable maintenance work to keep it properly adjusted. The company’s engineers estimate that maintenance costs would increase by $5,030 per month if the machine were purchased. In addition, the machine would require a $99,000 overhaul at the end of the sixth year.

     The new etching machine would be usable for 10 years, after which it would be sold for its scrap value of $270,000. It would replace an old etching machine that can be sold now for its scrap value of $69,000. Tiger Computers, Inc., requires a return of at least 18% on investments of this type. (Ignore income taxes.)

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Compute the annual net cost savings promised by the new etching machine. (Omit the "$" sign in your response.)

Using the data from requirement (1) and other data from the problem, compute the new machine’s net present value. (Use the incremental-cost approach.) (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Tiger Computers, Inc., of Singapore is considering the purchase of an automated etching machine for use in the production of its circuit boards. The machine would cost $910,000. (All currency amounts are in Singapore dollars.) An additional $660,000 would be required for installation costs and for software. Management believes that the automated machine would provide substantial annual reductions in costs, as shown below:

Explanation / Answer

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