3, A manual and an automated production method are to be compared. (25 points) T

Question

3, A manual and an automated production method are to be compared. (25 points) The Manual method costs s0,00 50000lyear for 7 years. It will cost $20,000 for $O The automated method costs $135,000 to be installed and operational with a yearly operating cost of $5,000 and a service life of 5 years. The salvage value after 5 years is $70,000. Like the manual method, yearly revenue is $50000ear.A What is the profit generated at the end of each alternative's life? 0 to be installed and operational and is expected to generate lyear to operate and at 7 years, t will be scrapped

Explanation / Answer

Given

Installation cost for manual method = $90000

Operational Cost = $20000/year

Revenue = $50000/year

Salvage value = 0

Service life = 7 years

Profit = revenue in seven years - operational cost in seven years - installation cost + salvage value

= 50000*7- 20000*7 - 90000+0

= $120000

Automated method

Installation cost = $1350000

Operational Cost = $5000/year

Revenue = $50000/year

Salvage value = $70000

Service life = 5 years

Profit = revenue in five years - operational cost in five years - installation cost + salvage value

= 50000*5- 5000*5 - 135000+70000

= $160000

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