Question

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3. A search and rescue team is considering replacing an unsafe manual operation with a remotely controlled robot. The robot purchase and installation cost is $200,000 and annual operating expense is $35,000. The manual system has annual operating expenses of $90,000 Equipment used with the manual system could be sold at a salvage value of $50,000 What is the rate of return for the robotics system? What is the payback for the robotics system? It is hard to determine the dollar value in terms of safety improvement. If the required rate of return for the organization is 40 %, what is the implied annual value of the safety if the company implements the robot? a. b. c.

Answer 1

Answer
	robot purchase and installation cost = 200,000
	AOC = 35000
	Annual savings = $ 90000
	Net savings/yr = 90000-35000 = $55000
	salvage value = 50000 of old manual system
	Net investment = 200000 - 50000 = $ 150000
A	a) Rate of return = 55000/150000 * 100 = 36.67%
B	b) Payback period = 150000 / 55000 = 2.72 yrs
C	c) At 40% rate of return, net saving per year = 40% * 150000 = $ 60000
	Net savings due to operation = $ 55000
	Implied annual value of safety = 60000- 55000 = $5000