Question

If labour savings are estimated to be $25000 per 6 months, how much can INDE232 Company afford to spend to purchase one, if the company uses a MARR of 1% per month and wants to recover its investment in 1-1/2 (1 and a half) years?

Answer 1

Labor saving after every 6 months = 25,000

MARR = 1% per month which means effective MARR for 6 months = [(1 + MARR)^^{6 months}] = [(1 + 0.1)^⁶] = 1.0615 which is 6.15% MARR per year

Recovery period = 1.5 years there will be 3 savings of 25,000 after every interval of 6 months

Present value of saving is calculated using the given formula: [Saving / (1 + MARR of 6 months)^^{After every 6 months}]

After every 6 months	Cost	Present Value
1	25,000	23,552
2	25,000	22,187
3	25,000	20,902
		66,640

Sum of present value of saving = 66,640 which can be invested now be INDE232 to purchase.