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.

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fivestarent9 fivestarent9 · Answer 1 · 2019-10-06T09:34:22+02:00

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 PVF@ 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