Question

neg This Question: 1 pt 6 of 8 (6 complete) This Quiz: 8 pts possible Marginal cost-benefit analysis and the goal of the firm Ken Allen, capital budgeting analyst for Bally Gears, Inc., has been asked to evaluate a proposal. The manager of the automotive division believes that replacing the robotics used on the heavy truck gear line will produce total benefits of $564,000 (in today's dollars) over the next 5 years. The existing robotics would produce benefits of $415,000 (also in today's dollars) over that same time period. An initial cash investment of $225,600 would be required to install the new equipment. The manager estimates that the existing robotics can be sold for $68,000 Show how ken will apply marginal cost-benefit analysis techniques to determine the following: tior s Book paid ft stota the b a. The marginal benefits of the proposed new robotics b. The marginal cost of the proposed new robotics . The net benefit of the proposed new robotics d. What should kon recommend that the company do? Why? e. What factors besides the costs and benefits should be considered before the final decision is made? c. The net benefit of the proposed new robotics is (Round to the nearest dollar) d. Ken Allen should recommend the company (Select the best answer below.) tA O to not replace the existing robotics because the net profit is negative. thinks POS O to replace the existing robotics because the net profit is negative Net . Other factors that should be considered before the final decision is made are: (Choose all that apply) 760, ETKA DA. Whether even better robotics may be available in a short while .Net 1690 DB What will be the energy consumption of the new robotics +3,90 C. Make sure sunk costs are included The D. Whether there will be additional training necessary with the new robotics ot Click to select your answer(s).

Answer 1

Marginal means additional. Marginal cost benefit analysis is used to evaluating the project. Instead of considering total cost and total benefit like conventional system in this approach only marginal cost and benefit analysed.

It means if a project is provide net marginal benefit then it may be an acceptable project.

Calculation of Marginal cost, Marginal benefit and net benefit.

Particulars	Amount
Present Value of Existing Benefit (a)	415000
Present Value of Proposed benefit (b)	564000
Marginal Benefit ( if robotics replaced) (b-a)	149000
Existing Cost ( c)	-
Marginal cost if project accepted (d )	225600
Marginal Cost (d-c)	225600
Cash Flow from ale of existing robotics	68000
Net loss ( Marginal benefit Marginal cost + opportunity cost through sale of existing robotics)	(8600) (149000+68000-225600)

Answer

Marginal Benefit-$149000

Marginal Cost- $225600

Net loss - ($8600)

D. Ken Allen should recommend to replace the company to not replace the existing robotics because the netprofit is negative

Additional Factors

Beside analysis of financial data non-financial factors also play a crucial role for decision making in new projects. Significant social and environmental impacts need to be evaluated for decision making.

For evaluation of social impact following issues need to be considered.

1.Law and order

2.Workplace safety

For evaluation of environmental impact following issues need to be considered.

• Environmental Impact Analysis need to be completed.