with formula please! Report abuse 1. By installing some elaborate inspection equ

Question

with formula please!

Report abuse 1. By installing some elaborate inspection equipment on its assembly line, the Robot Corp. can avoid hiring an extra worker who would have earned $26,000 a year in wages and an additional $7500 a year in employee benefits. The inspection equipment has a 6-year useful life and no salvage value. Use a nominal 18% interest rate in your calculations How much can Robot afford to pay for the equipment if the wages and worker benefits would have been paid a) At the end of each year b) monthly 2. Two different companies are offering a punch press for sale. Company A charges $250,000 to deliver and install the device. Company A has estimated that the machine will have maintenance and operating costs of $4000 a year and will provide an annual benefit of $89,000. Company B charges $205,000 to deliver and install the device. Company B has estimated maintenance and operating costs of the press at $4300 a year, with an annual benefit of $86,000. Both machines will last 5 years and can be sold for $15,000 for the scrap metal. Use an interest rate of 12%, which machine should your company buy?? Please help me out here thanks! 9 d $20e valueis $240dd for 3

Explanation / Answer

Total Wages and worker benefits=26000+7500=$33500

If this amt. is paid at the end of each year for 6 years ,we need to calculate the PRESENT VALUE @18%interst

to know the amt. to be afforded for the equipment----

So we apply the Formula for pv of annuity due

PV of annuity due = Annual cash flow * [ 1-(1+i)-n ] / i * (1 + i)

a) 33500 * (1 - (1.18)-6 ) / .18 * 1.18 = $ 138,260.13 - amount Robot can afford if he chooses this option

b) Monthly outflow 33500/12 = 2792 applying the same formula @ 18% p.a. interest ie 1.5% monthly

2792 * (1 - (.015) -72 ) / .015 * 1.015 = $122414.31 - amount Robot can afford if he chooses this option

2. Equipment A

Company B

Company B's net present value of cash flows is greater than Company A . So B is recommended

Particulars outflow (+) PV factor @ 12% cost of capital PV Initial invement +250000 1 250000 Operating costs - year 1 (net cash flow 89000-4000) = -85000 -85000 0.893 -75905 - year 2 -85000 0.797 -67745 - year 3 -85000 0.712 -60520 - year 4 -85000 0.636 -54060 - year 5 -85000 0.567 -48195 Salvage value - 15000 0.567 - 8505 Net benefits (+) NPV of inflows over outflow -64930

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