Problem 5.14 : A large food-processing corporation is considering using laser te
ID: 2464321 • Letter: P
Question
Problem 5.14: A 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 $3.5million to purchase the industrial strength lasers. The system will save $1,550,000 per year in labor and materials. However it will require an additional operating and maintenance cost of $350,000. Annual income taxes will also increase by $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.
Need help with this one please.
Explanation / Answer
Cash flow =1550000-350000-150000=1050000 for 10 year time period
Additional in 10 year is salvage value of 200000
Npw=
-3500000+
1050000[(1–(1+.18)^-10)/.18]+200000(1.18)^-10
=-3500000+1050000(4.4941)+200000(.1911)
=$1257004
It has positive Npw so project is acceptable