1
Introduction: The variability between present value of all
To compute: The net annual cost saving.
1
Answer to Problem 7.30P
The annual net cost saving if the robot is purchased is $580,000.
Explanation of Solution
Annual saving inventory carrying costs $210,000
Saving in labor cost is 25000 direct labor hour each year the labor rate is $16 per hour
| Particular | Amount |
| Saving in labor costs | 400,000 |
| Saving in inventory carrying cost | 210,000 |
| Total | 610,000 |
| Less: increase in power and maintenance costs | 30,000 |
| Annual net cost saving | 580,000 |
The annual net cost saving if the robot is purchased is $580,000.
2.
Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal
To compute: The net present value of the proposed investment in the robot is $46,120.
2.
Answer to Problem 7.30P
The net present value of the proposed investment in the robot is $46,120.
Explanation of Solution
Explanation:
| Particular | New $ | Year | Year | |
| Cost of robot | (1600000) | |||
| Installation and software | 450000 | |||
| Cash released from inventory | 400000 | |||
| Annual net cost saving | 580000 | |||
| Salvage value | 70000 | |||
| (2050000) | 400000 | 580000 | 70000 | |
| Discount | 1 | 0.833 | 2.991 | 0.402 |
| Present value of cash | (2050000) | 333200 | 1734780 | 28140 |
| Net present value | 46120 |
The net present value of the proposed investment in the robot is $46,120.
3.
Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.
To compute: The actual net present value of the investment.
3.
Answer to Problem 7.30P
The actual net present value is (148520)
Explanation of Solution
| Particular | Amount $ |
| Saving in labor cost ( | 360000 |
| Saving inventory carrying costs | 210000 |
| Total | 570000 |
| Less: increase in power and maintenance | 30000 |
| Annual net cost saving | 540000 |
Calculation of NPV.
| Particular | New $ | Year | Year | |
| Cost of robot | (1600000) | |||
| Installation and software | (524000) | |||
| Cash released from inventory | 400000 | |||
| Annual net cost saving | 540000 | |||
| Salvage value | 70000 | |||
| Cash flows | (2125000) | 400000 | 540000 | 70000 |
| Discount | 1 | 0.833 | 2.991 | 0.402 |
| Present value of cash | (2125000) | 333200 | 1615140 | 28140 |
| Net present value | (148520) |
The actual net present value is (148520)
4
Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.
The benefit other than cost benefits and compute amount of annual cash inflow that would be needed from the benefit.
4
Answer to Problem 7.30P
The new automated machine gives intangible benefits such as speed reliability and high quality, more variety of products, reduction in inventories etc. Rate of return worth at least $49,646 per year.
Explanation of Solution
- The new automated machine gives intangible benefits such as speed reliability and high quality, more variety of products, reduction in inventories etc.
- Net present value excluding intangible benefits (negative)- ($148,520) Present value actor for annuity at 20% for 5 periods − 2.991
These intangible benefits will result in saving costs from the reduced labor hours.
Rate of return worth at least $49,646 per year.
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Chapter 7 Solutions
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