Pine Company is upgrading its processing plant by installing a new lathe. The ne

Question

Pine Company is upgrading its processing plant by installing a new lathe. The new equipment will cost $340,000 and have a service life of 6 years. The salvage value at the end of six years will be $30,000. Annual sales are estimated to increase by $120,000. Additional annual labor expense is estimated to be $20,000 and additional annual other manufacturing costs are estimated to increase by $6,000. The company uses a MARR value of 8%. Ignore depreciation for this problem. Complete the following sensitivity analysis table using present worth method to analyze the project for a plus and minus 15% change in sales.

Explanation / Answer

year -15% 0% 15% sales 102000 120000 138000 labor exp 17000 20000 23000 manufacturing cost 0 0 0 net income 85000 100000 115000 year 0 -340000 -340000 -340000 1 85000 100000 115000 2 79000 94000 109000 3 73000 88000 103000 4 67000 82000 97000 5 61000 76000 91000 6 85000 100000 115000 NPV 8710.22 78053.41 147396.61

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