Subject: Engineering Economics A company is considering the purchase of a material handling (MACRS-7 year property...

Subject: Engineering Economics

A company is considering the purchase of a material handling (MACRS-7 year property class) automated system for its distribution center. The new system costs $350,000 has an estimated life of 8 years and an estimated salvage value at that time of 20% of initial cost. Annual maintenance are estimated 25% of its first cost regardless of its level of usage. The operating costs of the system depends on the use, at a rate of $3/piece. The current system is manually operated and it is estimated that the automated system will generate savings of $8/piece. The distribution center operates 5 days a week, 50 weeks per year. The daily demand is stochastic and the company wished to know what should be the minimum daily demand to break even. The company uses a MARR of 15%, has a tax rate of 25%. Perform an ATCF break even analysis to determine the minimum daily demand to make the investment feasible.

Expert Solution

Rahul Sunny answered 7 months ago

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