In a new highly automated factory, labor costs are expected to decrease at an annual rate of

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In a new highly automated factory, labor costs are expected to decrease at an annual rate of 5 percent; material costs will increase at an annual rate of 4 percent; overhead costs will increase at 8 percent. The labor, material, and overhead costs at the end of year 1 are \($2\) million, \($3\) million, and \($1.6\) million, respectively. The time value of money rate is 11 percent, and the time horizon is 7 years.

a. Determine the dollar value for each cost category (labor, material, overhead) for each year and determine the total cost for each year. (Hint: Use a spreadsheet!)

b. Determine the present worth of each cost category and the total cost.

c. Determine the annual worth over 7 years that is equivalent to the present worth of the total cost.

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Principles Of Engineering Economic Analysis

ISBN: 9781118163832

6th Edition

Authors: John A. White, Kenneth E. Case, David B. Pratt

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