Equipment purchase cost-benefit analysis (Learning Objective 5)
Faced with rising pressure for a $15 per hour minimum wage rate, the farming industry is currently exploring the possible use of robotics to replace some farm workers. The Lettuce Bot is one such robot; its job is to thin out a field of lettuce, removing the least promising buds of lettuce. By removing these weaker plants, the stronger lettuce plants have more room to grow. Assume the following facts:
- 1. One Lettuce Bot would do the work of 20 farm workers.
- 2. Each farm worker typically works 40 hours on the lettuce thinning process each year.
- 3. Each farm worker would earn $15 per hour plus 7.65% payroll tax.
- 4. The Lettuce Bot is estimated to cost $8,000 plus $500 for delivery.
- 5. Annual costs of operating the Lettuce Bot are expected to be $1,500.
While the Lettuce Bot itself may be in workable condition for up to five years, assume that the farm would view its implementation as a one-year experiment.
Requirement
Perform a cost-benefit analysis for the first year of implementation to determine whether the Lettuce Bot would be a financially viable investment if the minimum wage is raised to $15 per hour.
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