Using excel: Fast PC, Inc., is considering a new automated assembly line to auto

Question

Using excel: Fast PC, Inc., is considering a new automated assembly line to automate assembly of
tablets. The new line can be installed for $12,450,000 today and will have a life of 7 years
until technological obsolescence. At the end of its 7 year life, its components will have a
salvage value of $1,200,000, and it will cost $356,250 to have the line removed. The line
will produce $5,275,000 additional sales capacity per year due to productivity gains.
Additional technical labor cost will be $1,305,000 per year and operating and maintenance
costs will be $442,500 per year. The company’s MARR for this project is 18.0%. Based
on net present value estimate, do you recommend installing the automated assembly line?
What is the equivalent uniform annual worth and IRR of the project?

please also note and show your formula if you could please, will be much appreciated in trying to understand how to find the correct answer.

Explanation / Answer

Additional Sales 5275000

Labor cost 1305000

Maintenanace 442500

Net additional sales 3527500

Outflow in first year 12450000

Inflow in year 7 = 1200000 - 356250 = 843750

It is recommended to install the automated assembly line

Period Cash Flow Present Value 0 -12,450,000.00 -12,450,000.00 1 3,527,500.00 2,989,406.78 2 3,527,500.00 2,533,395.58 3 3,527,500.00 2,146,945.40 4 3,527,500.00 1,819,445.26 5 3,527,500.00 1,541,902.76 6 3,527,500.00 1,306,697.25 7 3,527,500.00 1,107,370.55 8 843,750.00 224,469.70 NPV 1,219,633.29

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