Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system.The annual net cash benefits and savings associated with the system are described as follows:Decreased wasteIncreased qualityDecrease in operating costsIncrease in on-time deliveries$300,000400,000600,000200,000The system will cost $9,000,000 and last 10 years. The company's cost of capital is 12 percent.Required:1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projectswith a payback of five years or less. Would the system be acquired?2. Calculate the NPV and IRR for the project. Should the system be purchased-even if it does not meet thepayback criterion?3. The project manager reviewed the projected cash flows and pointed out that two items had been missed.First, the system would have a salvage value, net of any tax effects, of $1,000,000 at the end of 10 years. Second,the increased quality and delivery performance would allow the company to increase its market share by 20percent. This would produce an additional annual net benefit of $300,000. Recalculate the payback period, NPV,and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decisionchange? Suppose that the salvage value is only half what is projected. Does this make a difference in theoutcome? Does salvage value have any real bearing on the company's decision?

Calculate the net present value (NPV) and internal rate of return (IRR) for the given project, and…

Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: Decreased waste Increased quality Decrease in operating costs Increase in on-time deliveries $300,000 400,000 600,000 200,000 The system will cost $9,000,000 and last 10 years. The company's cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects

Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: Decreased waste Increased quality Decrease in operating costs Increase in on-time deliveries $300,000 400,000 600,000 200,000 The system will cost $9,000,000 and last 10 years. The company's cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Based on present worth analysis!!!!!