What is the equivalent annual cost for upgrading

Reference no: EM131971822

Question: In evaluating projects, Buford Engineers (BE) uses a discount rate of 15% for a before-tax analysis. One year ago, a robotic transfer machine was installed at a cost of $38,000. At the time, a 10-year life was estimated, but the machine has had a down-time rate of 28%, which is unacceptably high. A $12,000 upgrade should fix the problem, or a labor-intensive process costing $3500 in direct labor per year can be substituted. The plant estimates indirect plant expenses at 60% of direct labor costs, and it allocates front-office overhead at 40% of plant expenses (direct and indirect). The robot has a value in other uses of $15,000. What is the equivalent annual cost for upgrading? For switching to the labor-intensive process?

Reference no: EM131971822

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