Question

large​ food-processing corporation is considering using laser technology to speed up and eliminate waste in the​ potato-peeling process. To implement the​ system, the company anticipates needing​ $3.5 million to purchase the​ industrial-strength lasers. The system will save​ $1,550,000 per year in labor and materials.​ However, it will require an operating and maintenance cost of​ $350,000. Annual income taxes will be​ $150,000. The system is expected to have a​ 10-year service life and will have a salvage value of about​ $200,000. If the​ company's MARR is​ 18%, use the NPW method to justify the project.

Answer 1

Answer:

The NPV using MARR of 18% is 1,257,004. Since the NPV is positive, accepting the project is justified.

Explanation:

 

​NPV=TVECF−TVIC

Where

TVECF is the present  value of the expected cash flow; and TVIC is the present value of invested amount

Saving                          1,550,000

Les Costs:    

maintenance 350,000  

income tax 150,000         500,000

0-9                                 1,050,000

10   1,050,000 +200,000=  1,250,000

Year      inflow [email protected] 18%          sum

0 -3,500,000    1               -3,500,000

1 1,050,000 0.847458 889,830.5

2 1,050,000 0.718184         754,093.7

3 1,050,000 0.608631 639,062.4

4 1,050,000 0.515789 541,578.3

5 1,050,000 0.437109 458,964.7

6 1,050,000 0.370432 388,953.1

7 1,050,000 0.313925 329,621.3

8 1,050,000 0.266038 279,340.1

9 1,050,000 0.225456 236,728.9

10 1,250,000 0.191064        238,830.6

 NPV                         1,257,004