Question

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Chapter 13 - Uncertain cashflows Your company is considering the purchase of new robotic automation e Known financial data regarding the project is as follows. The company is aware that the robot will require major maintenance in year unsure what it will cost. Robot Software Upfront Inventory Savings Annual Savings - labour Labour Hours Saved Labour Rate Annual Savings - Inventory Monthly power increase Year 8 Repairs Salvage Life Cost of Capital $ 1,600,000 $ 700,000 $ 300,000 $ 320,000 20,000 16 $ 190,000 $ 2,500 ?? $ 90,000 20% Compute the maximum repair cost that would justify investing in the equipment. Item Year(s) Amount Disc, factor

Answer 1

of cost calculation item maximum . outflow out flow Jout flow Robot Software repain Iyears o o 1612 that would amount ($) 1,600,000 700,000 30000 Justify investing in year-8 Diser factoonerit present value ($) (1,600,000) power increase per annum (700,000) (133,200) 4.44 ($ 2500x12 months 300,ooo s upfront inventory Saving inflow annual Labour savings inflow annual inventory saving inflow Salvage value inflow 1012 1412 | 12 300,000 ou 320,000 1900OD r goooo 4.44 4.44 0.l12 1420800 843600 10080 u o Net peresent value before considering year; & Repaisy i t $ 4280

since the NPV of project before considering year & repairs = $141260, maximum Iostify amount that ca amount that could be invested in year: 8 repairs present value factor (20%, 8year) = 0.2326 = $1412BD PVF (20%, 8 year 3) , present value factor (204 $141280 $ 607395. mascimum amount of stepcuss in yea; 8 = 0-2326 If we invest in years , repairs of amount $ 607 395, then Net present value of project will be the be the maximum amount that can be invested in repairs in year 8 = $607395.