Question

A process control manager is considering two ro­bots to improve materials-handling capacity in the production of rigid shaft couplings that make dissimilar drive components. Robot X has a first cost of $76,000, an annual M&O cost of $31,000, and $42,000 salvage value, and it will improve revenues by $96,000 per year. Robot Y has a first cost of $146,000, an annual M&O cost of $28,000, and $47,000 salvage value, and it will increase revenues by $121,000 per year. The company’s MARR is 46% per year, and it uses a 3-year study period for economic evaluations. Calculate the incremental ROR, and identify the robot the manager should select.

The incremental ROR is_____%.

The manager should select robot_____.

Answer 1

Incremental ROR :
year	X - Cash flow	Y - Cash flow	difference	dis 9%	dis 10%	9% PV of CF	10% PV of CF
0	-76000	-146000	-70000	1	1
1	65000	93000	28000	0.917	0.909	25676	25452
2	65000	93000	28000	0.842	0.826	23576	23128
3	107000	140000	33000	0.772	0.751	25476	24783
Total						74728	73363
Incremental ROR = 9% + (74728 - 70000) / (74728 - 73363) * (10% - 9%)
Incremental ROR = 9% + 3.46% = 12.46%
The manager should select Robot Y, because the incremental ROR is in positive
which means Robot Y is having a edge over Robot X.