A large factory is considering the installation of warm air hand dryers in its toilets in place
Question:
A large factory is considering the installation of warm air hand dryers in its toilets in place of paper towel dispensers. The factory has a total of ten sets of toilets and feels that while the hand driers operate on electricity, this will be offset by no longer having to purchase paper towels and pay for waste paper disposal. In addition, there is expected to be a reduction in the time taken for staff to service the bathrooms. The related costs and savings are:
• initial cost of air hand dryers, \(\$ 48400\)
• \(\quad\) annual paper towel purchases avoided, \(\$ 28200\)
• \(\quad\) annual waste paper disposal avoided, \(\$ 770\)
• annual bathroom servicing costs avoided, \(\$ 1650\)
• increase in annual electricity costs, \((\$ 2530)\)
• required rate of return over five years is 5 per cent per year.
Required:
a Calculate the payback period.
b Calculate NPV.
c Given your answers to
(a) and (b), explain if the investment should be made.
d What other considerations should be taken into account?
Step by Step Answer:
Accounting Information For Business Decisions
ISBN: 9780170253703
2nd Edition
Authors: Billie Cunningham, Loren A. Nikolai, John Bazley, Marie Kavanagh, Geoff Slaughter, Sharelle Simmons