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The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $260,000. The manager believes that the new investment will result in direct labor savings of $52,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 2 1.833 1.736 1.690 1.626 3 2.673 2.487 2.402 2.283 3.465 3.170 3.037 2.855 4.212 3.791 6 4.917 7 5.582 8 6.210 6.802 9 5.759 7.360 6.145 10 a. What is the payback period on this project? 5 years 4 5 0.833 1.528 2.106 2.589 3.605 3.353 2.991 4.355 4.111 3.785 3.326 4.868 4.564 4.160 3.605 5.335 4.968 4.487 5.328 4.772 5.650 3.837 4.031 5.019 4.192 b. What is the net present value, assuming a 12% rate of return? Use the table provided above. Round to the nearest whole dollar. Net present value 582,104 X c. What else should the manager consider in the analysis?

The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $260,000. The manager believes that the new investment will result in direct labor savings of $52,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 2 1.833 1.736 1.690 1.626 3 2.673 2.487 2.402 2.283 3.465 3.170 3.037 2.855 4.212 3.791 6 4.917 7 5.582 8 6.210 6.802 9 5.759 7.360 6.145 10 a. What is the payback period on this project? 5 years 4 5 0.833 1.528 2.106 2.589 3.605 3.353 2.991 4.355 4.111 3.785 3.326 4.868 4.564 4.160 3.605 5.335 4.968 4.487 5.328 4.772 5.650 3.837 4.031 5.019 4.192 b. What is the net present value, assuming a 12% rate of return? Use the table provided above. Round to the nearest whole dollar. Net present value 582,104 X c. What else should the manager consider in the analysis?

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 15E
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Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $260,000. The manager believes that the new investment will result in direct labor savings of $52,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 15% 1 0.943 1.833 2.673 3.465 2 3 4 5 6 7 8 9 4.212 4.917 5.582 6.210 6.802 7.360 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 12% 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 10 a. What is the payback period on this project? 5 ✔ years 5.019 20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 b. What is the net present value, assuming a 12% rate of return? Use the table provided above. Round to the nearest whole dollar. Net present value $582,104 X c. What else should the manager consider in the analysis? Taxes and Maintenance costs
Transcribed Image Text:Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $260,000. The manager believes that the new investment will result in direct labor savings of $52,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 15% 1 0.943 1.833 2.673 3.465 2 3 4 5 6 7 8 9 4.212 4.917 5.582 6.210 6.802 7.360 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 12% 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 10 a. What is the payback period on this project? 5 ✔ years 5.019 20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 b. What is the net present value, assuming a 12% rate of return? Use the table provided above. Round to the nearest whole dollar. Net present value $582,104 X c. What else should the manager consider in the analysis? Taxes and Maintenance costs
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