Chapter 1, Problem 1.22BE

Equipment purchase cost-benefit analysis (Learning Objective 5)

Faced with rising pressure for a $15 per hour minimum wage rate, the farming industry is currently exploring the possible use of robotics to replace some farm workers. The Lettuce Bot is one such robot; its job is to thin out a field of lettuce, removing the least promising buds of lettuce. By removing these weaker plants, the stronger lettuce plants have more room to grow. Assume the following facts:

1. a. One Lettuce Bot would do the work of 25 farm workers
2. b. Each farm worker typically works 50 hours on the lettuce thinning process each year.
3. c. Each farm worker would earn $15 per hour plus 7.65% payroll tax.
4. d. The Lettuce Bot is estimated to cost $9,500 plus $1,000 for delivery.
5. e. Annual costs of operating the Lettuce Bot are expected to be $2,500.

While the Lettuce Bot itself may be in workable condition for up to five years, assume that the farm would view its implementation as a one-year experiment.

Requirement

Perform a cost-benefit analysis for the first year of implementation to determine whether the Lettuce Bot would be a financially viable investment if the minimum wage is raised to $15 per hour.