3.36 Part Three Estimating Cash Flows Initial Expenditure Due to Robot Installation TABLE ILIA - 1\\ AMOUNT (5 ) COST DESCRIPTION $ 80, 000 TABLE IN Cost of robot ( base ) 3, 000 DESCRIPTION Special holders and 10.0/s Installation cost 1 , 280 Maintenance Rearrangement cost 1, 500 Operating & Installation cost 5, 000 Training cos Feedback & interface devices 300 10 years Feasibility study Tax and ins Increase in Rearrangement cost 4 , 362 Other mise Conveyor cost 670 Fence 2, 000 Total varia Savings dy Feeders & trays Special tooling cost 4, 000 Grippers 2, 000 Special arbor & fixtures 5, 000 Control locks & safety $ 109 , 1 12 9. Tax Total Expenditure* 10 . Savi 11 . Sav Case ( 4 . All retraining costs are borne by the company . 1 . Ide 5 . The displaced employees , permanently unemployed , are not compensated 2 . Fir by the company . 3 . Fir 6 . The effect of inflation can be ignored . 4 . Is 5 . 7 . Working capital is not affected . A 8. The company's required return is 25 percent . Changes in the cash flow of the company due to robotization were estimated by identifying various costs and savings involved . The relevant costs and saving* are described briefly . 1 . Robot and accessories cost - includes cost of the robot , special tools , te` equipment , etc . 2. Installation cost - labor and materials for the site , floor and foundation preparations , utilities and interface devices between the robot and fixtures! 3. Rearrangement cost- labor and material cost for the installation of the safety fence , conveyors , etc . 4 . Special tooling costs - including costs of special end- of-arm devices ally changes in the fixture design , clamps , limit switches , sensors , etc . 5 . Indirect labor costs - repair and maintenance costs . 6 . Operating supplies cost - annual cost of utilities and services used by` robot and the support equipment . 7 . Maintenance supplies cost . 8 . Launching costs - work stoppage due to installation costs.Chapter 10 Inflation and Capital Investment Analysis{ TABLE ILIA - 21 Changes in the Annual Cash Flow of the Company DESCRIPTION OF THE CASH FLOW Maintenance and service labor cost For the robot work center AMOUNT IS /YEARIN Operating supplies $ 6, 000 Training cost of the technician ($ 3, 000 is distributed over 3, 000 10 years using the 1 2 percent interest rate ) Tax and insurance 1 2.5% ) 530 Increase in pay due to job upgrading of technician 2, 721 Other miscellaneous costs 5, 000 Total variable cost / year 1,000 Savings due to labor displacement ( 20, 000 / year / displacement ) $ 18, 251 $60, 000 9. Taxes and insurance . 10 . Savings through reduced scrap , increased productivity , and other credits . 11 . Savings in direct labor . Case Questions 1 . Identify after tax cash flows for the investment . 2 . Find the net present value . 3 . Find the internal rate of return . 4 . Is the investment attractive from the company's perspective ?" 5 . A 10 - year life was assumed . What is the minimum life needed for the invest - ment to be attractive ?"MACHINE TOOL CORPORATION (A) M achine Tool Corporation was searching for ways to increase productv- ity and decrease costs. The company began to look at the use of robots _One possible use of robots obots was in gear hobbing. A gear-hobbing ma- thining center consisted of four machines operated individually by semiskilled human operators. Two sets of machines operated in the shop. Depending upon production requirements, either the four-spindle hobbing machine and shaving machine (low volume) or the eight-spindle hobbing machine and shaving ma- chine was used. Major operator functions involved loading gear blanks, cutting gear profiles, stacking semi-finished parts, and trimming the gears on the shav- ing machine. The cleaning and inspection operations, subsequent to shaving were also done manually. ative Case for Part Three The existing workstation could be modified so that a single robot could per- form all loading and unloading operations. Stacking the parts on incoming and outgoing trays, inspection, and overall supervision of the workstation could then be done by one operator, instead of the four operators required for the previous setup. The operator who remained would then be responsible for 1. programming and starting the robot, 2. arranging parts on the incoming tray, 3. periodic inspection of the finished parts, 4. unloading finished parts and stacking on the outgoing tray, and 5. general maintenance of the work center. Special tools, to support the operation, were designed and the best robot for the use was identified. The layout of the modified workstation and specifications of robots available in the market were taken into consideration in identifying the best robot. Using the technical specifications of this robot, a time study was con- ducted and the cycle time for the operation was determined (88.1 seconds). From the cycle time, the production capacity of the robotized plant was deter- mined. The production capacity of the human-operated work center was 800 units per day; for the robotized plant, the production capacity would be 1,315 units per day. Economic Feasibility Study Once the technical feasibility study was completed, an economic analysis from the company's perspective was performed to justify the investment (robot). To simplify the analysis, the following assumptions were made: 1. The company is unable to meet the demand due to low production capacity of the human-operated work center. The additional capacity, due to robot installation, can be sold without any difficulty. 2. The life period of the robot installation is ten years, with a salvage value of $10,000. 3. The interest rate is 12 percent per year