Ch 25 pro 8Please provide instructions.Cash Payback Period, Net Present Value Analysis, and Qualitative ConsiderationsThe plant manager of Shannon Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $48,000. The manager believes that the new investment will result in direct labor savings of $16,000 per year for 10 years.Present Value of an Annuity of $1 at Compound InterestYear6%10%12%15%20%10.9430.9090.8930.8700.83321.8331.7361.6901.6261.52832.6732.4872.4022.2832.10643.4653.1703.0372.8552.58954.2123.7913.6053.3532.99164.9174.3554.1113.7853.32675.5824.8684.5644.1603.60586.2105.3354.9684.4873.83796.8025.7595.3284.7724.031107.3606.1455.6505.0194.192a.  What is the payback period on this project? yearsb.  What is the net present value, assuming a 10% rate of return? Use the table provided above. Round to the nearest whole dollar.Net present value$c.  What else should the manager consider in the analysis? Liz C

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Asked Nov 22, 2019
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Ch 25 pro 8

Please provide instructions.

Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations

The plant manager of Shannon Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $48,000. The manager believes that the new investment will result in direct labor savings of $16,000 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 0.833
2 1.833 1.736 1.690 1.626 1.528
3 2.673 2.487 2.402 2.283 2.106
4 3.465 3.170 3.037 2.855 2.589
5 4.212 3.791 3.605 3.353 2.991
6 4.917 4.355 4.111 3.785 3.326
7 5.582 4.868 4.564 4.160 3.605
8 6.210 5.335 4.968 4.487 3.837
9 6.802 5.759 5.328 4.772 4.031
10 7.360 6.145 5.650 5.019 4.192

a.  What is the payback period on this project?
 years

b.  What is the net present value, assuming a 10% rate of return? Use the table provided above. Round to the nearest whole dollar.

Net present value $

c.  What else should the manager consider in the analysis?
 

Liz C

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Expert Answer

Step 1

The payback period (PBP) is the time period of recovery of investment. The PBP is calculated by dividing the cost of equipment with the savings in the labour cost. The PBP is 3 years.

 

Investment cost
Payback period
Annual savings
$48,000
$16,000
=3 years
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Investment cost Payback period Annual savings $48,000 $16,000 =3 years

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Step 2

The net present value (NPV) is the difference of the present value (PV) of cash flows and the PV of cash outflows...

Net present value = (Annual cash flow x PVIFA107% 10ysars)- Investment cost
($16,000x6.145)-$48,000
S98,320-S48,000
=S50,320
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Net present value = (Annual cash flow x PVIFA107% 10ysars)- Investment cost ($16,000x6.145)-$48,000 S98,320-S48,000 =S50,320

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