Question

A manufacturing company is considering switching to an advanced robotics system that will reduce the labor...

A manufacturing company is considering switching to an advanced robotics system that will reduce the labor cost in a given factory. The initial cost is $175,000 with annual costs of $45,000 and savings of $75,000 in the first year. Savings are projected to increase by $2500 annually after Year 1. The salvage value 10 years from now is projected to be $25,000. What rate of return will the factory make on this investment?

Round your answer to the nearest tenth of a percent (without the percent sign).  

PLEASE USE EXCEL TO SOLVE AND SHOW EXCEL FORMULAS

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Answer #1

Using the formula IRR in excel we find that the rate of return is 18.07%. The table is provided below

Eoy One time cash flow Periodic cash outflow Periodic cash inflow Final net cash flow
0 -175000 -175000
1 -45000 75000 30000
2 -45000 77500 32500
3 -45000 80000 35000
4 -45000 82500 37500
5 -45000 85000 40000
6 -45000 87500 42500
7 -45000 90000 45000
8 -45000 92500 47500
9 -45000 95000 50000
10 25000 -45000 97500 77500
Rate of return is 18.07%

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