"If we can get that new robot to combine with our other automated equipment, we'll have a complete flexible manufacturing system (FMS) in place in our Northridge plant," said Hal Swain, production manager for Diller Products.

"Let's just hope that reduced labor and inventory costs can justify its acquisition," replied Linda Wycoff, the controller. "Otherwise, we'll never get it. You know how the president feels about equipment paying for itself out of reduced costs."

Selected data relating to the robot are provided below:

Cost of the robot	$3,200,000
Software and installation	$680,000
Annual savings in labor costs	?
Annual savings in inventory carrying costs	$300,000
Monthly increase in power and maintenance costs	$3,000
Salvage value in 12 years	$97,000
Useful life	12 years

Engineering studies suggest that use of the robot will result in a savings of 20,000 direct labor hours each year. The labor rate is $15 per hour. Also, the smoother work flow made possible by the FMS will allow the company to reduce the amount of inventory on hand by $190,000. The released funds will be available for use elsewhere in the company. This inventory reduction will take place in the first year of operation. The companys required rate of return is 12%. (Ignore income taxes.)

	Year(s)	Amount of Cash Flows	12% Factor	Present Value of Cash Flows
Cost of the robot	Now	$(3,200,000)	1.000	$(3,200,000)
Software and installation	Now	(680,000)		0
Cash released from inventory	1	190,000
Annual net cost savings	1-12	564,000
Salvage value	12	97,000
Net present value				$(3,200,000)

I am having trouble calculating the 12% factor for each line (software & installation, salvage value etc.). I was able to calculate the cash flows.