Question

2. Caterpillar Inc. would like to upgrade current fabrication techniques on its Excavator assembly line. Upgrades include state of the art equipment designed to automate specific portions of fabrication which have been very labor intensive in the past. To meet current floor plan space, four equipment design alternatives have been considered, which will have capital investment and annual operating expenses as shown in the table below. Assuming a useful life of 8 years for each design, no end-of-life market (salvage) value, and a desired before-tax MARR of 12% per year, determine which design should be selected based on: a) the PW method, and b) the IRR method. Design 1 -525,000 Design 2 -850.000 Design 3 -1,135,000 Design 4 -1,420,000 Capital investment Annual expenses: Power Labor Maintenance Taxes and insurance -168,000 -20.000 -345,000 -12,000 -180,000 -25,000 -200.000 -15,000 -220,000 -65,000 -320.000 -25,000 -235.000 -50,000 -370,000 -30,000

Answer 1

Design 2 is economical which has lower present Value of Total Expenditure. So it is advisable to select Design 2 by Caterpillar loc. DIRR Method: Cash inflow from all the four designs are same. There is no cash inflow details giver seperatly for each desigen. So it is unable to find out geperate 1B Rs for each design.

Design 2 is economical which has lower present Value of Total Expenditure. So it is advisable to select Design 2 by Caterpillar loc. DIRR Method: Cash inflow from all the four designs are same. There is no cash inflow details giver seperatly for each desigen. So it is unable to find out geperate 1B Rs for each design.