Question
In: Economics
To automatically insert electronic components in printed circuit boards for a cell phone production line, a...
To automatically insert electronic components in printed circuit boards for a cell phone production line, a $500,000 surface mount placement (SMP) machine is being evaluated by a manufacturing engineer at Motorolla. Over the 10-year planning horizon, it is estimated the SMP machine will produce annual cost savings of $92,500. The engineer estimates the machine will be worth $50,000 at the end of the 10-year period. Based on the firm’s 10% MARR, how long does it take for the new SMP machine to fully recover its initial cost, including the Time Value of Money (TVOM)? use discounted payback period
Solutions
Expert Solution
| Col 1 | Col 2 | Col 3 | Col 4 | Col 5 |
| Year | Cash flows ($) | Present Value Factor (P/F, 10%, n) | Discounted Cash Flow Col 2 * Col 3 | Cumulative Discounted cash flows($) |
| 0 | -500000 | 1.0000 | -500000.00 | -500000 |
| 1 | 92500 | 0.9091 | 84091.75 | -415908.25 |
| 2 | 92500 | 0.8264 | 76442.00 | -339466.25 |
| 3 | 92500 | 0.7513 | 69495.25 | -269971.00 |
| 4 | 92500 | 0.6830 | 63177.50 | -206793.50 |
| 5 | 92500 | 0.6209 | 57433.25 | -149360.25 |
| 6 | 92500 | 0.5645 | 52216.25 | -97144.00 |
| 7 | 92500 | 0.5132 | 47471.00 | -49673.00 |
| 8 | 92500 | 0.4665 | 43151.25 | -6521.75 |
| 9 | 92500 | 0.4241 | 39229.25 | 32707.50 |
The discounted payback period = 8 + |-6521.75 / 39229.25|
= 8 + (6521.75 / 39229.25)
= 8 + 0.17
= 8.17 years
Thus, it will take 8.17 years for the new SMP machine to fully recover its initial cost.
Rahul Sunny answered 4 months agoRelated Solutions
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