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To automatically insert electronic components in printed circuit boards for a cell phone production line, a...

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Economics

To automatically insert electronic components in printed circuitboards for a cell phone production line, a $500,000 surface mountplacement (SMP) machine is being evaluated by a manufacturingengineer at Motorolla. Over the 10-year planning horizon, it isestimated the SMP machine will produce annual cost savings of$92,500. The engineer estimates the machine will be worth $50,000at the end of the 10-year period. Based on the firm’s 10% MARR, howlong does it take for the new SMP machine to fully recover itsinitial cost, including the Time Value of Money (TVOM)?use discounted payback period

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3.7 Ratings (409 Votes)

Col 1 Col 2 Col 3 Col 4 Col 5
Year Cash flows ($) Present Value Factor (P/F, 10%, n) Discounted Cash Flow Col 2 * Col 3 Cumulative Discounted cash flows($)
0 -500000 1.0000 -500000.00 -500000
1 92500 0.9091 84091.75 -415908.25
2 92500 0.8264 76442.00 -339466.25
3 92500 0.7513 69495.25 -269971.00
4 92500 0.6830 63177.50 -206793.50
5 92500 0.6209 57433.25 -149360.25
6 92500 0.5645 52216.25 -97144.00
7 92500 0.5132 47471.00 -49673.00
8 92500 0.4665 43151.25 -6521.75
9 92500 0.4241 39229.25 32707.50

The discounted payback period = 8 + |-6521.75 / 39229.25|

                                                   = 8 + (6521.75 / 39229.25)

                                                   = 8 + 0.17

                                                   = 8.17 years

Thus, it will take 8.17 years for the new SMP machine to fully recover its initial cost.

   
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