A11 - Exercise145 1. Thepaybackperiodisdeterminedasfollows:...

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Exercise 14-5  1. The payback period is determined as follows: Year Investment Cash Inflow Unrecovered  Investment 1 $15,000 $1,000 $14,000 2 $8,000 $2,000 $20,000 3 $2,500 $17,500 4 $4,000 $13,500 5 $5,000 $8,500 6 $6,000 $2,500 7 $5,000 $0 8 $4,000 $0 9 $3,000 $0 10 $2,000 $0   The investment in the project is fully recovered in the 7th year.  To be more exact, the payback period is approximately 6.5  years. 2. Since the investment is recovered prior to the last year, the  amount of the cash inflow in the last year has no effect on the  payback period.
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  1. Computation of the net annual cost savings: Savings in labor costs (25,000 hours × $16 per hour). $400,000 Savings in inventory carrying costs. ............................   210,000     Total. ............................................................................ 610,000 Less increased power and maintenance cost  ($2,500 per month × 12 months). ..............................       30,000     Net annual cost savings. ............................................. $580,000 2. Year(s) Amount of  Cash Flows 20%  Factor Present  Value of  Cash Flows Cost of the robot. .......... Now $(1,800,000) 1.000 $(1,800,000) Installation and  software. .................... Now $(900,000) 1.000 (900,000) Cash released from  inventory. ................... 1 $400,000  0.833 333,200  Net annual cost savings 1-10 $580,000  4.192 2,431,360  Salvage value. .............. 10 $70,000  0.162             11,340       Net present value. ......... $            75,900       Yes, the robot should be purchased. It has a positive net  present value at a 20% discount rate. 3. Recomputation of the net annual cost savings: Savings in labor costs (22,500 hours × $16 per hour). $360,000 Savings in inventory carrying costs. ............................   210,000     Total. ............................................................................ 570,000 Less increased power and maintenance cost  ($2,500 per month × 12 months). ..............................  
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A11 - Exercise145 1. Thepaybackperiodisdeterminedasfollows:...

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