Question

Problem #1 Staunch company is considering expanding its range of industrial machinery products by manufacturing machine tables, saddles, machine bases, and other similar parts. Several combinations of new equipment and personnel could serve to fulfill this new function. Optionl (MI): New machining center with three operators . Option 2 (M2): New machining center with an automatic pallet changer and three operator Option3 (M3): New machining center with an automatic pallet changer and two-sharing operators Each of these arrangements incurs different costs and revenues. The time taken to load and unload parts is reduced in the pallet-changer cases. Certainly, it costs more to acquire, install, and tool-fit a pallet changer, but because the device is more efficient and versatile, it can generate larger annual revenues. Although saving on labor costs, task-sharing operators take longer to train and are more inefficient initially. As the operators become more experienced at their tasks and get used to collaborating with each other, it is expected that the annual benefits will increase by 13% per year over the five-year study period. Staunch company has estimated the investment costs and additional revenues in the following table. All cash flows include all tax effects." Do nothing" is obviously an option, since Staunch will not undertake this expansion if none of the proposed methods is economically viable..

Answer 1

TIME M1 M2 M3 294600 74000 74000 294600 58000 65540 74000 74060.2 74000 83688.026 194000 214567.4694 0 -209100 55000 55000 55000 55000 135000 4 4 9 a) Present Worth 10 11 b) Annual Worth $9,586.40 $1,164.26 12 13 c) IRR 14 $34,556.84 $40,244.66 $37,084.99 NPV(0.12,C4:C8)+C3 PMT(0.12,5,-C9) IRR(C3:C8) $9,586.40 $11,164.26 $10,287.74 $10,287.74 18% 17% 16%

If company follows Present Worth and Annual Worth Method, M2 will be selected and if it follows IRR method M1 will be selected.