Question

1)

A.One company is concerned about the continued increase in the cost of fuel for its fleet of home delivery units. The cost of fuel is expected to increase by 3% annually over the base cost of $ 5.40 per gallon in the coming years. If the company's logistics manager considers that a unit accumulates an average of 150,000 miles in a year with a consumption efficiency of 10 miles per gallon, what is the net present value of the cost of fuel per unit of transport in the following 7 years, if the company establishes a 12% annual rate?

B. An industrial robot, part of the operation of an automotive assembly line, costs $ 750,000. Given its technology and specialized function, it is expected to only have an operating life of 6 years, at the end of which its resale price is estimated at approximately $ 40,000. What is the equivalent annual value of the project from the investment perspective and its salvage value if the TREMA is 20% per year ?; What level of annual labor savings should the project observe to justify the robot's investment

Answer 1

1)

A.Calculation of Present Value Cost of Fuel per gallon of transport:

Year	Cost of Fuel per Gallon (A)	No of Gallons (150000miles/10mile per gallon) (B)	Total Cost (A)*(B)= ©	PVF 12% (D)	Present Value (C ) *(D) = (E )	PV of Cost of Fuel per Gallon (E )/(B)
0	$              5.40
1	$              5.56	15000	$   83,430.00	0.8929	$   74,491.07	$               4.97
2	$              5.73	15000	$   85,932.90	0.7972	$   68,505.18	$               4.57
3	$              5.90	15000	$   88,510.89	0.7118	$   63,000.30	$               4.20
4	$              6.08	15000	$   91,166.21	0.6355	$   57,937.78	$               3.86
5	$              6.26	15000	$   93,901.20	0.5674	$   53,282.06	$               3.55
6	$              6.45	15000	$   96,718.24	0.5066	$   49,000.47	$               3.27
7	$              6.64	15000	$   99,619.78	0.4523	$   45,062.93	$               3.00

B.

Investment = $750,000

Salavage Value at the end of 6th year = $40,000

Convert salvage value in to present value using PVF(20%,6th year) = 1/(1.2)^6

= 0.3349

Present Value of Salvage Value = $40,000*0.3349

= $13,396(Approx)

Calculation of Annual Value of Investments:

Investment = $750,000

Less: Salvage Value = $13,396

= $736,604

Therefore based on the above the if the annual labour savings are more than $736,604 then the management should invest in robot's.