You require an additional robot for your manufacturing facility. For your applic

Question

You require an additional robot for your manufacturing facility. For your application, you have found two robots that meet your specifications; an OTC and a Denso. You may borrow money for this purchase at 3.8% APR compounded monthly for six years. Comparing Net Present Values, which one should you buy? Include a Cash flow diagram for each purchase option.

A) OTC robot           initial cost= $74,500

                                Monthly consumbale costs= $379

                                Estimated 7-year salvage value= $7,500

B) Denso robot: initial cost= $86,000

                           Monthly consumable costs= $199

                          Estimated 7 year salvage value= $5,000

Explanation / Answer

A / 1 B C D E F 2 Particulars OTC Denso 3 Initial Cost $74,500 $86,000 4 Present value(a) ($74,500) ($86,000) 5 6 Monthly maintenance costs $379 $199 7 APR 3.80% 3.80% 8 period(n) years 7 7 9 Interest compounding(monthly) 12 12 10 nper 84 84 11 Present value(b) ($27,914.99) ($14,657.21) =PV(D7/D9,D10,D6,0,0) 12 Salvage Value after 7 years $7,500 $5,000 13 APR 3.80% 3.80% 14 period(n) years 7 7 15 Present value© $5,776.70 $3,851.13 =PV(D13,D14,0,-D12,0) 16 17 TOTAL present values(a+b-c) ($96,638.29) ($96,806.08) 18 Comment: Option to buy OTC is better

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