Javier is an IE at Lobos Manufacturing. He has been studying process line G to determine if an automated system would be preferred to the existing labor-intensive system. If Lobos wants to earn at least 20% and uses a 15-year planning horizon, which alternative is preferred? Contributed by Paul R. McCright, University of South Florida Labor Intensive Automated Initial cost $0 $110,000 18,500 Installation cost First-year O&M 2,000 4,800 Annual increase 450 950 First-year labor costs Annual increase 72,000 47,500 5% 5% Salvage value (EOY15) 2,500 20,000
Javier is an IE at Lobos Manufacturing. He has been studying process line G to determine if an automated system would be preferred to the existing labor-intensive system. If Lobos wants to earn at least 20% and uses a 15-year planning horizon, which alternative is preferred? Contributed by Paul R. McCright, University of South Florida Labor Intensive Automated Initial cost $0 $110,000 18,500 Installation cost First-year O&M 2,000 4,800 Annual increase 450 950 First-year labor costs Annual increase 72,000 47,500 5% 5% Salvage value (EOY15) 2,500 20,000
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:Annual O&M
Annual increase
4%
0.3
Major maintenance 185
210
(Year 25)
Salvage cost
30
27
Javier is an IE at Lobos Manufacturing. He has been studying process
line G to determine if an automated system would be preferred to the
existing labor-intensive system. If Lobos wants to earn at least 20%
and uses a 15-year planning horizon, which alternative is preferred?
Contributed by Paul R. McCright, University of South Florida
Labor Intensive Automated
Initial cost
$0
$110,000
Installation cost
18,500
First-year O&M
2,000
4,800
Annual increase
450
950
First-year labor costs
72,000
47,500
Annual increase
5%
5%
Salvage value (EOY15) 2,500
20,000
In an analysis one alternative has a net present worth of $4200, based
5 on a 6-year analysis period that matches its useful life. A 9% interest
|rate was used. The replacement will be an identical item with the
same cost, benefits, and useful life. Using a 9% interest rate, compute
the net present worth for a 12-year analysis period.
ves Differ
Use a 10-year analysis period and an 8% interest rate to determine
which alternative should be selected:
A
В
First cost
$6500 $12,000
Uniform annual benefit $1800 $2000
Useful life, in years
10
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