r admits that t would cost $45,000 more at the end of three years to 1 admit it\

Question

r admits that t would cost $45,000 more at the end of three years to 1 admit it's a lot of money," said Franoi Rogers, the controller. "But you know the turnover problem weve $108,000 per year. And we would save our 16% had with the welding crew This machine would another $6,500 per year in reduced material waste. When you figure that the rate of return parts. But have your people work up the Cack here to view Exhibit 881 and Exhibr 88.2 to determine the appropriate discount factoris) using tables 1. Compute the annual net cost savings promised by the automated welding machine 2a Using the data from (1) above and other data tr

Explanation / Answer

b. NO.

Since the net present value of the automated welding machine is negative, it should not be purchased.

3. For the new welding machine to be an acceptable investment, the net present value must be positive. Thus the intangible benefits must be:

2a. Cash Flows Years Now 1 2 3 4 5 6 Cost of machine -250000 Software and installation -80000 Salvage value of old equipment 12000 Annual net cost savings 78500 78500 78500 78500 78500 78500 Replacement of parts -45000 Salvage value of new machine 20000 Total cash flows -318000 78500 78500 33500 78500 78500 98500 Discount factor (16%) 1.000 0.862 0.743 0.641 0.552 0.476 0.410 Present value -318000 67667 58326 21474 43332 37366 40385 Net Present value -49451

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