Question

A company needs a modern material handling system for facilitating access to and from a busy warehouse. If the company’s managementuse a MARR (given in the below table) in their economic decisions.

The company found two systems, the first system is a second-hand and the second system is a new system. The economic consequences of both systems are given in the below table.

MRR=17.1% per year

For Second-Hand system:

Investment Cost= 164500$

Annual expenses=46700$

Annual savings= 82600$

Useful Life = 10 years

Salvage Value = 34500$

For New system:

Investment cost =324000$

Annual expenses=121600$

First year savings=171300$ increasing by 3200$ each year thereafter

Useful life=20 years

Salvage value=108400$

PART1: For the second-hand system alternative:

a) Draw the cash flow for the economic consequences.

b) Find the present worth, annual worth, future worth.

c) Find the internal rate of return.

d) Is the system economically justified? (explain why).

e) Calculate the simple and discounted payback periods.

f) What are the annual savings required for the system to breakeven?

This question is best answered through excel. Please include the methods of solving.

Answer 1