Percentage Change in Annual Labor Saving Problem

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A large automobile manufacturer is considering the installation of a high-tech material handling system for $30,000,000. The system will save
$7,500,000 per year in manual labor, and it will incur $2,000,000 in annual operating and maintenance expenses. The salvage value at the end of the
system’s 10-year life is estimated to be $1,000,000. The company’s MARR is 12% per year.
1. Calculate what percent change in installation cost is required to reverse your decision about the profitability of the investment (all other estimates
remain as originally given).
2. Calculate what percent change in annual labor savings is required to reverse your decision about the profitability of the investment (all other
estimates, including installation cost, remain as originally given).
3. Based on your answers to (1) and (2), is the decision to invest in the new system more sensitive to errors in estimating the installation cost of the
system or to errors in estimating annual labor savings? Be sure to explain the reasoning behind your decision.
Submission: You are to submit your complete work to this problem using a file upload.
This assignment is open book, open notes, but IS NOT COLLABORATIVE. You are to complete it to the best of your ability without consultation of your
peers or the internet.
A company can buy a centrifugal separator for $45,000. The estimated market (salvage) value is $15,000 after a three-year useful life. Operating and
maintenance costs are expected to be $3,500 per year. The effective income tax rate is 30% and the after-tax MARR is 12%.
1. Compute the ATCFs and the after-tax AW of the equipment if the company uses straight-line depreciation.
2. Compute the ATCFs and the after-tax AW of the equipment if the company uses 200% declining balance depreciation.
3. If the before-tax annual revenue is $19,000 per year, is this project profitable on an after-tax basis? Show your calculations and explain your
reasoning. It is not necessary to redo the entire ATCF table to receive full credit for this part of the problem (but you can if you wish).
Submission: You are to submit your complete work to this problem using a file upload.
This assignment is open book, open notes, but IS NOT COLLABORATIVE. You are to complete it to the best of your ability without consultation of your
peers or the internet.

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Percentage Change

installation cost

annual labor saving

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