Problem 14-29
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)
...............................
30,000
