Question
b. Safeforce Plc is evaluating a new piece of equipment that will automatically install power windows in cars coming off the production line. The equipment
b. Safeforce Plc is evaluating a new piece of equipment that will automatically install power windows in cars coming off the production line. The equipment cost is $4.0 million, with installation cost of $0.5 million and the firm estimates that the present value of the annual cost savings from installing the equipment is $1.8 million. The production manager is also considering purchasing a module that will allow the equipment to be used for Safeforce Plcs SUV production. The additional module represents a real option with a cost of $0.9 million dollars. The production manager estimates that adding the module would give Topaz Group cost savings of an additional $3.9 million. What is the profitability of the project before and after considering the real option? Show calculations.
What is the profitability of the project before and after considering the real option? Should Safeforce Plc go forward with the above project together with the option?
Show calculations. Briefly discuss other factors may affect Safeforce Plc decisions.
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