Marginal cost–benefit analysis and the goal of the firm
Ken Allen, capital budgeting analyst for Bally Gears, In
a proposal. The manager of the automotive division believes that replacing the robotics used on the heavy tru
benefits of $560,000 (in today’s dollars) over the next 5 years. The existing robotics would produce benefits o
dollars) over that same period. An initial cash investment of $220,000 would be required to install the new eq
estimates that the existing robotics can be sold for $70,000. Show how Ken will apply marginal cost–benefit a
determine the following:
Future costs that may be incurred by replacing the robots right now (costs caused by change in tec
Determine whether there will be additional training necessary with the new robotics
Is the depreciation of the new robotics the same as it is on the old ones? What is the new ROI?
Possibility of availability of better robotics in a short while, and the energy consumption of the new
How important is a switch to the new robotics? Is it worth the time and effort to change?