Problem 15-47 Name:
Insert your answers in the gray-shaded cells or select from the drop-down list.
If an answer is incorrect, the word “wrong” will appear.
a.
Point
in
Time
Description Cash Flows xPV Factor =
0 Initial outlay (5,000,000)$ 1.0000
1-7
838,000$ 5.5824
7 Salvage value 400,000$ 0.6651
NPV
b. Based on NPV, this is an investment.
c.
PV of
( Annual Savings
+
PV of Salv.
Value
Investment =
$4,678,051 $266,040 5,000,000$
d.
PV of
Annual Cash Flows
PV Factor =
Annual Cash
Flow
$4,733,960 5.5824 848,015$ rounded
Annual Cash Flow +
Operating
Costs
=
Minimum
Labor
Savings
$848,015 $112,000 960,015$
e.
The company should consider the quality of the work performed by the machine versus the quality of
the work performed by the individuals; the reliability of the manual process versus the reliability of the
mechanical process; and perhaps most importantly, the effect on worker morale and the ethical
considerations in displacing 14 workers.
Solution
unacceptable
What other qualitative factors should the company consider in evaluating this investment?
Annual labor savings
less incremental costs
Present Value
(5,000,000)$
4,678,051
266,040
(55,909)$
Profitability Index
0.99
rounded
The company should consider the quality of the work performed by the machine versus the quality of
the work performed by the individuals; the reliability of the manual process versus the reliability of the
mechanical process; and perhaps most importantly, the effect on worker morale and the ethical
considerations in displacing 14 workers.
Solution
What other qualitative factors should the company consider in evaluating this investment?