Business at your design engineering firm has been brisk. To keep up with the increasing workload, you are considering the purchase of a new state-of-the-art CAD/CAM system costing $340,000, which would provide 5,000 hours of productive time per year. Your firm puts a lot of effort into drawing new product designs. At present, this is all done by design engineers on an old CAD/CAM system installed five years ago. If you purchase the system, 35% of the productive time will be devoted to drawing (CAD) and the remainder to CAM. While drawing, the system is expected to out-produce the old CAD/CAM system by a factor of 3:1. You estimate that the additional annual out-of-pocket cost of maintaining the new CAD/CAM system will be $175,000, including any tax effects. The expected useful life of the system is eight years, after which the equipment will have no residual value. As an alternative, you could hire more design engineers. Each normally works 1,750 hours per year, and 50% of this time is productive. The total cost for a design engineer is $60 per hour. There are six design engineers. Identify the net cash flows (benefits and costs) associated with the drawing activities if the CAD/CAM system is purchased instead of hiring more design engineers. ..... In year 0, the net cash flow associated with the drawing activities if the CAD/CAM system is purchased instead of hiring more design engineers will be $ - 340000. Round to the nearest dollar.) In years 1-8, the net cash flow associated with the drawing activities if the CAD/CAM system is purchased instead of hiring more design engineers will be $ Round to the nearest dollar.)
Business at your design engineering firm has been brisk. To keep up with the increasing workload, you are considering the purchase of a new state-of-the-art CAD/CAM system costing $340,000, which would provide 5,000 hours of productive time per year. Your firm puts a lot of effort into drawing new product designs. At present, this is all done by design engineers on an old CAD/CAM system installed five years ago. If you purchase the system, 35% of the productive time will be devoted to drawing (CAD) and the remainder to CAM. While drawing, the system is expected to out-produce the old CAD/CAM system by a factor of 3:1. You estimate that the additional annual out-of-pocket cost of maintaining the new CAD/CAM system will be $175,000, including any tax effects. The expected useful life of the system is eight years, after which the equipment will have no residual value. As an alternative, you could hire more design engineers. Each normally works 1,750 hours per year, and 50% of this time is productive. The total cost for a design engineer is $60 per hour. There are six design engineers. Identify the net cash flows (benefits and costs) associated with the drawing activities if the CAD/CAM system is purchased instead of hiring more design engineers. ..... In year 0, the net cash flow associated with the drawing activities if the CAD/CAM system is purchased instead of hiring more design engineers will be $ - 340000. Round to the nearest dollar.) In years 1-8, the net cash flow associated with the drawing activities if the CAD/CAM system is purchased instead of hiring more design engineers will be $ Round to the nearest dollar.)
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 19P
Related questions
Question
Transcribed Image Text:Business at your design engineering firm has been brisk. To keep up with the increasing workload, you are considering the purchase of a new state-of-the-art
CAD/CAM system costing $340,000, which would provide 5,000 hours of productive time per year. Your firm puts a lot of effort into drawing new product designs. At
present, this is all done by design engineers on an old CAD/CAM system installed five years ago. If you purchase the system, 35% of the productive time will be
devoted to drawing (CAD) and the remainder to CAM. While drawing, the system is expected to out-produce the old CAD/CAM system by a factor of 3:1. You estimate
that the additional annual out-of-pocket cost of maintaining the new CAD/CAM system will be $175,000, including any tax effects. The expected useful life of the
system is eight years, after which the equipment will have no residual value. As an alternative, you could hire more design engineers. Each normally works 1,750
hours per year, and 50% of this time is productive. The total cost for a design engineer is $60 per hour. There are six design engineers. Identify the net cash flows
(benefits and costs) associated with the drawing activities if the CAD/CAM system is purchased instead of hiring more design engineers.
In year 0, the net cash flow associated with the drawing activities if the CAD/CAM system is purchased instead of hiring more design engineers will be $ - 340000
(Round to the nearest dollar.)
In years 1-8, the net cash flow associated with the drawing activities if the CAD/CAM system is purchased instead of hiring more design engineers will be $
(Round to the nearest dollar.)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College