no excel show calculations The company Manufacturas Monarca Co. that is based in

Question

no excel show calculations

The company Manufacturas Monarca Co. that is based in Puebla, Mexico is planning to invest in an automated sorting system that has an initial cost of $I00,000 and a salvage value (then-current dollars) of $20.000 at the end of its ten year life. The equipment will allow the company to eliminate one full time worker every year during the next 10 years. Currently (at the time that the machine is installed) the annual cost of a worker is $30.000, which includes salary and benefits, however it is expected that this cost will increase every year by 10%. The operating and maintenance costs of the equipment are projected for the first year to be $10,000 but it will increase at a yearly rate of 7%. The company uses a MARR of 6%, and the average annual inflation rate in Mexico is estimated to be 7% during the next 10 years. Perform an economical analysis for the CEO of the company in terms of the cash flow that explicitly incorporates the inflation. The ISE-Philadelphia University Chapter 767 would like to invest in the project, however they are not used to deal with the inflation, therefore they have asked you to perform your analysis in terms of inflation free cash flow

Explanation / Answer

Answer:

            incorporates the inflation:

Year

Particulars

Cash        flows

MARR @6%

Amount (in $)

1

Initial cost

-100000

1

-100000

1 to 10

Depreciation (Note)

80000

7.360

588807

1 to 10

Savings in worker cost

478123

7.360

3519025

1 to 10

Operating and maintenance cost

-138164

7.360

-1016903

TOTAL

2990929

b. Analysis in terms of inflation free cash flow:

Year

Particulars

Cash flows

MARR @6%

Amount (in $)

1

Initial cost

-100000

1

-100000

1 to 10

Depreciation (Note)

80000

7.360

588807

1 to 10

Savings in worker cost

300000

7.360

2208026

1 to 10

Operating and maintenance cost

-100000

7.360

-736009

TOTAL

1960824

Working Note

1. Calculation of depreciation to be charged each year

Depreciation= (Cost- Salvage value)/ Life of asset

2. Discount factor calculation= 1/(1+Discount Rate)^No. of years

Answer:

1. Perform an economic analysis for the CEO of the company in terms of the cash flow that explicitly

            incorporates the inflation:

Year

Particulars

Cash        flows

MARR @6%

Amount (in $)

1

Initial cost

-100000

1

-100000

1 to 10

Depreciation (Note)

80000

7.360

588807

1 to 10

Savings in worker cost

478123

7.360

3519025

1 to 10

Operating and maintenance cost

-138164

7.360

-1016903

TOTAL

2990929

b. Analysis in terms of inflation free cash flow:

Year

Particulars

Cash flows

MARR @6%

Amount (in $)

1

Initial cost

-100000

1

-100000

1 to 10

Depreciation (Note)

80000

7.360

588807

1 to 10

Savings in worker cost

300000

7.360

2208026

1 to 10

Operating and maintenance cost

-100000

7.360

-736009

TOTAL

1960824

Working Note

1. Calculation of depreciation to be charged each year

Depreciation= (Cost- Salvage value)/ Life of asset

2. Discount factor calculation= 1/(1+Discount Rate)^No. of years

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.