Cash payback period, net present value analysis, and qualitative considerations The plant manager of Orlando Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $201,000. The manager believes that the new investment will result im direct labor savings of $67,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.870 1.626 2.283 1 2 3 4 0.943 1.833 2.673 3.465 0.909 0.893 1.736 1.690 2.402 3.037 2.487 3.170 1 2.855 0.833 1.528 2.106 2.589
Cash payback period, net present value analysis, and qualitative considerations The plant manager of Orlando Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $201,000. The manager believes that the new investment will result im direct labor savings of $67,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.870 1.626 2.283 1 2 3 4 0.943 1.833 2.673 3.465 0.909 0.893 1.736 1.690 2.402 3.037 2.487 3.170 1 2.855 0.833 1.528 2.106 2.589
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Cash payback period, net present value analysis, and qualitative considerations
The plant manager of Orlando Electronics Company is considering the purchase of new automated assembly
equipment. The new equipment will cost $201,000. The manager believes that the new investment will result in
direct labor savings of $67,000 per year for 10 years.
Present Value of an Annuity of $1 at Compound Interest
Year
10%
12%
15%
20%
1
0.943 0.909 0.893 0.870
1.833
1.736.
1.690
1.626
2.673
2.487
3.465
3.170 3.037
3.791
3.605 3.353
4.917
4.355
4.111
3.785
5.582
4.868 4.564
4.160
6.210
5.335
4.968
4.487
6.802
5.759
5.328
4.772
7.360 6.145 5.650 5.019
a. What is the payback period on this project?
X years
2
3
4
5
6
7
8
9
6%
10
4.212
2.402
2.283
2.855
0.833
1.528
2.106
2.589
2.991
3.326
3.605
3.837
4.031
4.192
b. What is the net present value, assuming a 10% rate of return? Use the table provided above. Round to the
nearest whole dollar.
Net present value
c. What else should the manager consider in the analysis?
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