Casters & Company purchased a new robotic assembly line for $252546. Casters pai

Question

Casters & Company purchased a new robotic assembly line for $252546. Casters paid 1/2 of the original cost in cash. The manufacturer has agreed to let Casters make payments for the rest of the cost. Casters will make yearly payments for 5 years to the manufacturer, who charges 3% interest compounded annually. The system is expected to last 12 years and have a salvage value of $14644 at that time. Over the 12 year period, Casters will have to pay a yearly maintenance fee of $1402 per year that is expected to increase by $506 per year. Casters uses a MARR of 6% to evaluate investments. What is the net annual worth of the robotic assembly line?

Explanation / Answer

Down Payment = 1/2*252546 = 126273

Annual Payment to manufacturer = (252546/2)/ ((1-(1+3%)^-5)/3%)

Annual Payment to manufacturer = $ 27,572.29

salvage value = 14644

Net Present Worth = - $ 267,304.50

Effective Annual Cost = (267304.50)/ ((1-(1+6%)^-5)/6%)

Effective Annual Cost = $ 63,457.13

Year Cash Payment Annual Payment to manufacturer Mainetnance Cost Salvage Value Total Cash Flow PV Factor @6% Present Value 0 -126273 0 0 0 -126273 1.000000 -126273 1 0 -27572.29 -1402 0 -28974.29 0.943396 -27334.23585 2 0 -27572.29 -1908 0 -29480.29 0.889996 -26237.35315 3 0 -27572.29 -2414 0 -29986.29 0.839619 -25177.06731 4 0 -27572.29 -2920 0 -30492.29 0.792094 -24152.74969 5 0 -27572.29 -3426 0 -30998.29 0.747258 -23163.72555 6 0 0 -3932 0 -3932 0.704961 -2771.904845 7 0 0 -4438 0 -4438 0.665057 -2951.52347 8 0 0 -4944 0 -4944 0.627412 -3101.926764 9 0 0 -5450 0 -5450 0.591898 -3225.846626 10 0 0 -5956 0 -5956 0.558395 -3325.799291 11 0 0 -6462 0 -6462 0.526788 -3404.100989 12 0 0 -6968 14644 7676 0.496969 3814.736835 Total -267304.4967

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