Direct Cost of Automation Purchase price of new robotic equipment $1,450,000 Sales tax on equipment $87,000 Shipping cost of equipment $63,000 Equipment installation $175,000 Software $98,000 Initial system and equipment testing $25,000 Equipment scrap value after five years $70,000 Annual Warranty Service Contract $21,000 robotics proposal one plant supervisor position with a salary of $98,000 per year. Two machine will need to be hired at $41,000 each. The automation and related electronics will increase energy usage by $126,000 per year. The software will create an expected savings of $210,000 per year Automation efficiencies will create a one-time $150,000 cost reduction in BPG's inventory stored in their warehouse. Automation will replace 25,000 labor hours per year costing $16 per hour. BPG's International Home Office in Cedar Rapids, Iowa expects a 16% return on any new investments in production. Questions are: 1) Ignoring present value concepts, what are the annual net cost savings if BPG further automates their production for horse feed? 2) Create a table showing the total initial cash flows for the investment in equipment, as well as all changes in cash flows for years one through five. 3) How are your results affected if BPG only requires a 12% return on any new investments in production?
Jack McGuire has been with Bulk Productions Group (BPG) for 14 years. McGuire decides to start slow with a project testing the increased automation of their horse feed line. Below are the projected cost of the expansion in automation, given a 5 year useful life of the robotic equipment:
Direct Cost of Automation
|
Purchase price of new robotic equipment |
$1,450,000 |
|
Sales tax on equipment |
$87,000 |
|
Shipping cost of equipment |
$63,000 |
|
Equipment installation |
$175,000 |
|
Software |
$98,000 |
|
Initial system and equipment testing |
$25,000 |
|
Equipment scrap value after five years |
$70,000 |
|
Annual Warranty Service Contract |
$21,000 |
robotics proposal one plant supervisor position with a salary of $98,000 per year. Two machine will need to be hired at $41,000 each. The automation and related electronics will increase energy usage by $126,000 per year. The software will create an expected savings of $210,000 per year Automation efficiencies will create a one-time $150,000 cost reduction in BPG's inventory stored in their warehouse. Automation will replace 25,000 labor hours per year costing $16 per hour. BPG's International Home Office in Cedar Rapids, Iowa expects a 16% return on any new investments in production.
Questions are:
1) Ignoring present value concepts, what are the annual net cost savings if BPG further automates their production for horse feed?
2) Create a table showing the total initial
3) How are your results affected if BPG only requires a 12% return on any new investments in production?
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