The Briggs and Stratton Commercial Division designs and manufacturers small engines for golf turf maintenance equipment. A robotics-based testing system with support equipment will ensure that their new signature guarantee program entitled "Always Insta-Start" does indeed work for every engine produced.
| Pull System | Push System | |
| First cost of equipment | $-1,800,000 | $-2,900,000 |
| AOC per Year | $-720,000 | $-440,000 |
| Salvage Value | $115,000 | $100,000 |
| Estimated Life | 8 years | 8 years |
Determine the salvage value for the push system that will make the company indifferent to the two systems. Also, MARR = 8% per year.
The salvage value for the push system is determined to be $ in $1000 units.
In order to be indifferent between two options, the Net Present Value (NPV) of both the options should be equal.
Calculation of NPV of Pull System
= AOC * Present Value Annuity Factor ( r% , n years) - Salvage Value * Present Value Factor ( r%, n years) + First cost of Equipment
= 720,000 * PVAF (8%, 8 years) - 115,000 * PVF (8%, 8 Years) + 1,800,000
= (720,000 * 5.204) - (115,000 * 0.5403) + 1,800,000
= 3,748,586 - 62,135 + 1,800,000
= $ 5,486,451
Present Value of Pull System = $ 5,486,451
Calculation of Salvage Value of Push System
Let Salvage Value of Push System be x
Now, equating NPV of both systems,
= NPV of Push System = NPV of Pull System
= AOC * Present Value Annuity Factor ( r% , n years) - Salvage Value * Present Value Factor ( r%, n years) + First cost of Equipment = NPV of Pull System
= 440,000 * PVAF (8%, 8 years) - x * PVF (8%, 8 Years) + 2,900,000 = 5,486,451
= (440,000 * 5.204) - (x * 0.5403) + 2,900,000 = 5,486,451
= 2,290,816 - 0.5403x + 2,900,000 = 5,486,451
= -0.5403x = -295,635
= x = 547,168
Therefore, salvage value of Push System should be $547,168 to make it indifferent to pull system.
The Briggs and Stratton Commercial Division designs and manufacturers small engines for golf turf maintenance equipment....
The Briggs and Stratton Commercial Division designs and manufacturers small engines for golf turf maintenance equipment. A robotics-based testing system with support equipment will ensure that their new signature guarantee program entitled "Always Insta-Start" does indeed work for every engine produced. Pull System Push System First cost of equipment $-2,000,000 $-2,700,000 AOC per Year $-700,000 $-440,000 Salvage Value $110,000 $70,000 Estimated Life 8 years 8 years Compare the annual worth of the two systems at MARR = 9% per year....
Required information The Briggs and Stratton Commercial Division designs and manufacturers small engines for golf turf maintenance equipment. A robotics-based testing system with support equipment will ensure that their new signature guarantee program entitled "Always Insta-Start" does indeed work for every engine produced. Pull System Push System First cost of equipment $-1,550,000 $-2,250,000 AOC per Year $-720,000 $-600,000 Salvage Value $110,000 $80,000 Estimated Life 8 years 8 years Determine the salvage value for the push system that will...