# Question 13 a small manufacturing company is considering expanding

Question 13

A small manufacturing company is considering expanding its operation by adding new product lines.

Any or all of the product lines shown below can be added. If the company uses a MARR of

15% per year and a 5-year project period, which products, if any, should the company manufacture?

Product

1 2 3 4

Initial cost, \$ -340,000 -500,000 -570,000 -620,000

Annual cost, \$/year -70,000 -64,000 -50,000 – 40,000

Annual savings, \$/year 180,000 190,000 220,000 205,000

Work out the solutions longhand (below)

Question 14

A mechanical engineer is considering two robots for improving materials handling in the production

of rigid shaft couplings that mate dissimilar drive components. Robot X has a first cost of

\$84,000, an annual maintenance and operation (M&O) cost of \$31,000, a \$40,000 salvage value, and

will improve net revenues by \$96,000 per year. Robot Y has a first cost of

\$146,000, an annual M&O cost of \$28,000, a \$47,000 salvage value, and will increase net revenues by

\$119,000 per year. Which one should be selected on the basis of a rate of return

analysis if the companyÝ¢ï¿½ï¿½s MARR is 15% per year? Use a three-year study period.

Use Excel to create a table and solve the problem. List your answer below.

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