Question

An industrial engineer has been studying a lean process line to determine if the company should switch from a labor-intensive line to a more automated system. If the company wants to earn at least 12% over a 10-year planning horizon, given the following cash flow estimates and using a Present Worth Analysis, which alternative is preferred?

	Labor Intensive Line	Automated Line
Initial Cost	$ 0	$ 100,000
Installation Cost	$ 0	$ 100,000
1st-Year Maintenance Costs	$ 2,000	$ 15,000
Annual Increase in Maintenance Costs	$ 250	$ 500
1st-Year Labor Costs	$ 95,000	$ 50,000
Annual Increase in Labor Costs	3%	3%
Salvage Value (End of Year 10)	$ 10,000	$ 20,000

Answer 1

Thanks!