1. The production foreman of a plant in reviewing his records found that an asse

Question

1. The production foreman of a plant in reviewing his records found that an assembly fine had the following production record: 5 years ago 4 years ago 3 years ago 2 years ago Last year ago $10,000 $9,000 $8,000 $7,000 $6,000 After consulting with the product engineer, he changed the sequence on the assembly line. He believes that production wil be $7,000 this year and will increase by $1,000 a year in each of the following 4 years. If his estimate of the future is correct, what will be the equivalent uniform annual benefit for the 10-year period? Assume interest at 8%, (15 pts)

Explanation / Answer

Year Benefit 1 10000 2 9000 3 8000 4 7000 5 6000 6 7000 7 8000 8 9000 9 10000 10 11000 a PV of PRODUCTION REVENUE $56,594 =NPV(8%,B2:B11) b Sum of present value factor @ 8% for 10 years 6.71 =PV(8%,10,-1,0,0) c=a/b Equivalent uniform annual benefit $8,434.15

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