Question 5An automobile parts manufacturer is considering whether they should invest in an automatic ormanually operated machinery. Both alternatives will have initial cost of $5,000. The automaticmachine allows for higher production levels and thus more revenues immediately, however moremaintenance costs over time than the manual machine. The manual machine does not produce asmany door panels initially but has limited energy and maintenance costs, so its net revenues arereasonably steady over time. The expected revenues of the automatic machine are $2,900 peryear for the next 4 years. The operating and maintenance cost will cost $200 now and willincrease by $700 per year. For example, the operating cost in the second year is 200+700-S900.The expected net revenues (taking into account salaries and energy cost) for the manual machineare $1,500 for the first year and $1,600, $1,750, and $1,850 for years 2-4, respectively.1. Calculate the Internal Rate of Return of each alternative.2. Knowing the MARR is 8%, use NPW analysis to compare these alternatives and find outwhich one is better.3. Calculate the benefit cost ratio for both alternatives.4. You re now required to compare those two alternatives using incremental IRR analysis.Conduct this analysis noting that for proper conclusions the incremental cash flowdiagram needs to reflect an investment (pay now and achieve revenues later). Thinkcarefully as to whether the increment, from mathematical perspective, needs to be fromManual →Auto or Auto Manual.

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Answered: An automobile parts manufacturer is…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A subsidiary of a major furniture company manufactures wooden pallets. The plant has the capacity to produce 300,000 pallets per year. Presently the plant is operating at 70% of capacity. The selling price of the pallets is $18.25 per pallet and the variable cost per pallet is $15.75. At zero output, the subsidiary plant’s annual fixed costs are $550,000. This amount remains constant for any production rate between zero and plant capacity. Solve, a. With the present 70% of capacity production, what is the expected annualprofit or loss for the subsidiary plant. b. What annual volume of sales (units) is required in order for the plant to break even? c. What would be the annual profit or loss if the plant were operating at 90% of capacity? d. If fixed costs could be reduced by 40%, what would be the new breakeven sales volume?
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SITUATION 3: A machine used for cutting materials in a factory has the following outputs per hour at various seeds and required periodic tool regrinding at the intervals cited. Seed Outputs per hour Tool regrinding A 200 pieces Every 8 hours B 280 pieces Every 5 hours A set of tools cost P12,600 and can be ground twenty times. Each regrinding costs P540.00 and the time needed to regrind and change tools is 1 hour. The machine operator is paid P350.00 per hour including the time the tool is changed. The tool grinder who also sets the tools to the machine is paid P400.00 per hour. The hourly rate chargeable against the machine is P380.00 regardless of machine seed. Which seed is the most economical?
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