Determine the annual cost of purchasing the new technology

Reference no: EM132000348

Question: Michelin is considering going ‘‘lights-out'' in the mixing area of the business that operates 24/7. Currently, personnel with a loaded cost of $600,000 per year are used to manually weigh real rubber, synthetic rubber, carbon black, oils, and other components prior to manual insertion in a Banbary mixer that provides a homogeneous blend of rubber for making tires (rubber products). New technology is available that has the reliability and consistency desired to equal or exceed the quality of blend now achieved manually. It requires an investment of $2.5 million, with $110,000 per year operational costs and will replace all the manual effort described above. The planning horizon is 8 years, and there will be a $300,000 salvage value at that time for the new technology. Marginal taxes are 40%, and the after-tax MARR is 10%

1) Determine the annual cost of purchasing the new technology: $ ________

2) Determine the annual cost of continuing with the manual mixing: $______

3) Determine the amount of the investment in new technology that would make the two alternatives equivalent: $______

Reference no: EM132000348

Questions Cloud

What are the costs and benefits of the restaurant controls : What are the costs and benefits of the restaurant's controls? How could the manager of the restaurant evaluate the effectiveness of the controls

How much are you willing to pay today to purchase one share : Michael's, Inc. just paid $2.50 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing.

What will be his consumption next year : If Mr. Free consumes $30 this year and invests the rest in the market, what will be his consumption next year?

What is the npv of investment : If the appropriate discount rate is 17.1 percent per annum, what is the NPV of this investment (to the nearest dollar)?

Determine the annual cost of purchasing the new technology : Michelin is considering going ‘‘lights-out'' in the mixing area of the business that operates 24/7. Currently, personnel with a loaded cost of $600,000.

What is the payback period : Its cost of capital is 16 percent. What is the payback period for this project (rounded to one decimal place)?

What is the npv of project : If the appropriate discount rate for the company is 15.9 percent, what is the NPV of this project (to the nearest dollar)?

Calculating the price of the bond : Microhard has issued a bond with the following characteristics: Principal: $1,000 Time to maturity: 20 years Coupon rate: 8 percent, compounded annually Annual.

Determining the expected annual return : If the account has an expected annual return of 10%, how much will Anne expect to have in her account on her 65th birthday?

User Account

All Pages