Materials Handling Equipment A manufacturer, whose minimum attractive rate of re
ID: 1254191 • Letter: M
Question
Materials Handling EquipmentA manufacturer, whose minimum attractive rate of return (MARR) is 10%, is considering three alternative automated material handling systems to replace his current manually operated system. The initial costs for each system are given below together with the estimated savings for each automated system with respect to the present system. Each system has an estimated life of 8 years.
System A System B System C
Initial Cost $10,000. $13,500. $15,000.
Savings - Yr 1 $1,700. $2,400. $3,300.
Savings - Yr 2 $1,800. $2,400. $3,150.
Savings - Yr 3 $1,900. $2,400. $3,000.
Savings - Yr 4 $2,000. $2,400. $2,850.
Savings - Yr 5 $2,100. $2,400. $2,700.
Savings - Yr 6 $2,200. $2,400. $2,550.
Savings - Yr 7 $2,300. $2,400. $2,400.
Savings - Yr 8 $2,400. $2,400. $2,250.
The Net Present Worth of System A is:
(Express your answer to 3 significant digits with trailing zeros as required: XXX00., or XXX0., or XXX. for positive present worths or -XXX00., -XXX0. or -XXX. for negative present worths)
The Net Present Worth of System C is:
(Express your answer to 3 significant digits with trailing zeros as required: XXX00., or XXX0., or XXX. for positive present worths or -XXX00., -XXX0. or -XXX. for negative present worths)
(Points : 5)
Based on the Net Present Worth analysis, which is the best of the three alternatives. (Points : 5)
Alternative A
Alternative B
Alternative C
4. The Payback Period for System B is:
[Express your answer in years to the closest 1/10 year, X.X]
5. Based on a Payback Period Analysis, which is the best of the three alternatives
Alternative A
Alternative B
Alternative C
Explanation / Answer
Net present worth =Initial cost - SFuture worth/(1+i)^n [n = no. of years, i = interest rate= 10%] A) so net present worth of system A = 10672.25 - 10000 = 672.25 B)net present worth of system C = 15201 - 15000 = 201 net present worth of B = 12803.80 - 13000 = -196.2 C) so better option would be = system A, because it's NPW is high among all system D) 5 yr and 7.5 months E) pay back period (PBP) of A = 5 yr and 2.72 month PBP of B = 5yr and 7.5 month PBP of C = 5yr so according to pay back period best option is option C