OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of $5.8 million, ha 20-year life, and will have zero salvage value. If the system is implemented, the company will save $760,000 per year in direct labor costs. The company requires a 10% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. a. Compute the proposed investment's net present value. b. Using the answer from part a, is the investment's internal rate of return higher or lower than 10%? Hint: It is not necessary to compute IRR to answer this question. Complete this question by entering your answers in the tabs below.

OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of $5.8 million, ha 20-year life, and will have zero salvage value. If the system is implemented, the company will save $760,000 per year in direct labor costs. The company requires a 10% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. a. Compute the proposed investment's net present value. b. Using the answer from part a, is the investment's internal rate of return higher or lower than 10%? Hint: It is not necessary to compute IRR to answer this question. Complete this question by entering your answers in the tabs below.

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Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 28P: Friedman Company is considering installing a new IT system. The cost of the new system is estimated...

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Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of $6.0 million, has a 20-year life, and will have zero salvage value. If the system is implemented, the company will save $740,000 per year in direct labor costs. The company requires a 10% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. a. Compute the proposed investment's net present value. b. Using the answer from part a, is the investment's internal rate of return higher or lower than 10%? Hint: It is not necessary to compute IRR to answer this question. Complete this question by entering your answers in the tabs below. Required A Required B Compute the proposed investment's net present value. Net present value
OptiLux is considering Investing in an automated manufacturing system. The system requires an initial Investment of $6.0 million, has a 20-year life, and will have zero salvage value. If the system is Implemented, the company will save $740,000 per year in direct labor costs. The company requires a 10% return from Its Investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) a. Compute the proposed Investment's net present value. b. Using the answer from part a, is the investment's Internal rate of return higher or lower than 10%? Hint: It is not necessary to compute IRR to answer this question. Complete this question by entering your answers in the tabs below. Required A Required B Compute the proposed investment's net present value. Net present value
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OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of $5.8 million, has a 20-year life, and will have zero salvage value. If the system is implemented, the company will save $760,000 per year in direct labor costs. The company requires a 10% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) a. Compute the proposed investment's net present value. b. Using the answer from part a, is the investment's internal rate of return higher or lower than 10%? Complete this question by entering your answers in the tabs below. Required A Required B Compute the proposed investment's net present value. Net present value $ 0 Required A Required B >
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