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An assembly operation requires $110,000 per year in labor costs. A robot can be purchased an...

An assembly operation requires $110,000 per year in labor costs. A robot can be purchased an installed to automate this operation. The total robot cost will be $200,000 and have no market value at the end of the 10 year period. Maintenance and operational costs for the robot are estimated to be $74,000 per year. Invested capital must earn at least 12%. Use the PW method to determine if this is a good investment. What is the PW.

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Answer #1
Year Savings AMC Net Annual PVF @12% Prsent value of savings
In labour Savings
1 110000 74000 36000 0.892857 32142.86
2 110000 74000 36000 0.797194 28698.98
3 110000 74000 36000 0.71178 25624.09
4 110000 74000 36000 0.635518 22878.65
5 110000 74000 36000 0.567427 20427.37
6 110000 74000 36000 0.506631 18238.72
7 110000 74000 36000 0.452349 16284.57
8 110000 74000 36000 0.403883 14539.8
9 110000 74000 36000 0.36061 12981.96
10 110000 74000 36000 0.321973 11591.04
Presetn value of cash savings 203408
Less: Initial Investment 200000
Present worth 3408
Hence, Robot must be installed
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