CASH FLOW ESTIMATION 1. Your company is considering investing in an automation system for its production line, in order to have savings in salaries. Obtain the Net Cash Flow for this project, calculate its Net Present Value and Internal Rate of Return considering the following data: Cost of the automation system hardware: $500,000 Shipping cost of the hardware: $50,000 Cost of the automation system software: $150,000 Necessary adaptations to the facilities: $100,000 New operators needed: 3 Cost of initial training: $20,000 per operator Salaries of each of the new operators: $3,000 per month Salaries of each of the current workers: $2,000 per month Current workers that are not going to be needed any more: 10 Hiring costs of new operators: $1,000 per operator Firing costs of current workers: $2,000 per worker Electricity used by the system: 500 kWh per month Cost of electricity: $2.5 per kWh Maintenance cost of the system: $5,000 per year Useful life of the system: 10 years Salvage value: $100,000 MARR = 18% per year Is this investment justified? MUTUALLY EXCLUSIVE PROJECTS WITH DIFFERENT LIVES 2. You are offered a food concession at the Charros de Jalisco Stadium to sell food during the matches. You expect to have profits of $20,000 every match and there are 20 matches per season (year). There are two options: Pay an initial fee of $1,000,000 for a 10 year contract, or pay an initial fee of $500,000 for a 5 year contract. With a MARR of 10% per year: a) What is the best option with a study period of 10 years? Assume you can invest your capital earning an interest rate equal to the MARR. Use FV b) What is the best option with a study period of 5 years? Assume that if you choose the 10 year contract, after 5 years you can sell your rights for the remaining 5 years to another company at $500,000. Use NPV