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Fort Belvoir, VA is considering the purchase of a new $300k machine to assist with sorting recyclables at its post transfer station
- Fort Belvoir, VA is considering the purchase of a new $300k machine to assist with sorting recyclables at its post transfer station. The machine is anticipated to increase transfer station maintenance costs by $5,000 per year and generate savings of $15,000 per year (from reducing the required number of employees) for the entirety of its economic useful life of 10 years. The installation anticipates the machine will have a $150k salvage value at the end of year 10. If FBVA’s MARR for this period is 8%, is the robot a good investment? Why or why not?
Expert Solution
| Machine Cost | $300000 | |
| working capital | $5000 | |
| savings | $15000 | |
| usefull life | 10 year | |
| salvage value |
$150000 |
| A)Machine Cost | $300000 | |
| B)life of machine | 10 year | |
| C)working capital requirement | $5000 | |
| D)CPVIF for 10 years @ 8% | 6.71 | |
| E)present value of working capital (C*D) | $33550 | |
| F)Present value of total cash out flow (A+E) | $333550 |
| G)Yearly cash in flow | $15000 | |
| H)CPVIF for 10 years @ 8% | 6.71 | |
| I)Present value of cash in flow | $100650 | |
| J) salvage vaue | $150000 | |
| K) PVIF For 10 years @ 8% | 0.463 | |
| L)Present value of salvage value | $69450 | |
| M) Present value of total cash in flow | $170100 | |
| Net loss (F - M) | $163450 |
CPVIF = Cumulative present value intex factor
PVIF = Present value intex factor
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