9. You are a budget analyst at Global Motors and gave been asked to evaluate the
ID: 2807224 • Letter: 9
Question
9. You are a budget analyst at Global Motors and gave been asked to evaluate the following proposal. The company is considering replacing its existing metal stamping press with a new fully automated press for its luxury car line. If done, this would produce future savings value TODAY at $350,000. The new automated stamping machine requires an initial investment of $405,000 and the existing production equipment can be salvaged or sold for $85,000. Use marginal cost-benefit analysis to determine the following:
a. The marginal (incremental) benefit of the proposed new robotic
b. Marginal (incremental) cost of new robotics:
c. Net benefit of proposed new robotics:
d. Should you recommend the new robotics system? Why or why not?
Explanation / Answer
a. Marginal benefit of proposed new robotics is equal to future savings value today which is equal to $350000
b.Marginal cost of new robotics = cost of new robotics - salvage value of old machine
= 405000-85000 = $320000
c. Net benefit of proposed new system = (a)-(b) = 350000-320000 = $30000
d.Yes, I recommend the new robotics system because it is giving an icremental profit of $30000.
As the net benefit is positive from the robotics system it is recommended to purchase.
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