Q1- Dr. Cruz is thinking about buying two types of production systems to produce Lithium batteries over 6 years: 1) a BDP system and 2) a GTT system. They produce the same number of pieces every year. On the basis of IRR criterion, which option should Dr. Cruz select? Please show all steps and work, thank you
Item |
BDP |
GTT |
Annual O&M Costs |
||
Annual labor cost |
$1,169,600 |
$707,200 |
Annual material cost |
832,320 |
598,400 |
Annual overhead cost |
3,150,000 |
1,950,000 |
Annual tooling cost |
470,000 |
300,000 |
Annual inventory cost |
141,000 |
31,500 |
Annual income taxes |
1,650,000 |
1,917,000 |
Investment |
4,500,000 |
12,500,000 |
Net salvage value |
$500,000 |
1,000,000 |
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