Chrome File Edit View History Bookmarks People Window Help Assignments: ACG 2071

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Chrome File Edit View History Bookmarks People Window Help Assignments: ACG 2071-CR, * Assignments: ACO 2071-CRh x D HW 12 User Dashboard x C O ezto.mheducation.com/hm.tpx T'm not sure we should lay out $310,000 for that automated welding machine,"said Jim Alder, president of the Superior Equipment Company. "That's a lot of money, and it would cost us $86,000 for software and instalation·ard another $4200 every month just to mantain the trg. In addison, the manufactrer admits that it would oost $49,000 more at the end of three years to replace worm-out parts 1 admit it's a lot of money," said Franci Rogers, the controller. "But you know the turnover problem we've had with the welding crew. This machine would replace six welders at a cost savings of $116,000 per year And we would save another $7,700 per year in reduced material waste. When you figure that the automated weder would last for sx years, I'm sure the retum would be greater than our 13% required rate of return. Tmnot convinced," countered Mr Alder. 'We can only get S18.000 scrap value out of or old g equipment if we se"nowand in six years the new machine will ony be worth $32,000 for parts. But have your peopie work up the fgures and we'll talk about them at the exeoulive commitee meeting w Click here to view Exhibit 138-1 and Exhibit 138-2 to determine the appropriate discount factors) using tables. 1 Compute the annual net cost savings promised by the automated welding machine. Reduction in labor costs Reduction in material waste Total L increased martenaroe Annual net cost savings 2a. Using the data from (1) above and other data from the problem, compute the automated welding machine's net present value. (Any cash outflows should be indicated by a minus sign. Use the appropriate table to determine the discount factors)) Software and instaliation

Explanation / Answer

1. Annual savings:

2.

2b. since the NPV is negative project is rejected

3. The amount of negative NPV should be recovered by the intangible benefits.

So the nominator is= 103616.9

Denominator is present value annuity factor for 6 years, 13% which is = 3.997

answer= 103616.9/3.997= 25923.67

Reduction in labor costs        1,16,000 Reduction in material waste              7,700 Total        1,23,700 Less Increased maintanance            50,400 Annual net cost savings            73,300

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