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''I'm not sure we should lay out $295,000 for that automated welding machine,'' said Jim Alder, president of the Superior Equipment Company. ''That's a lot
''I'm not sure we should lay out $295,000 for that automated welding machine,'' said Jim Alder, president of the Superior Equipment Company. ''That's a lot of money, and it would cost us $83,000 for software and installation, and another $3,900 every month just to maintain the thing. In addition, the manufacturer admits that it would cost $46,000 more at the end of three years to replace worn-out parts.'' I admit it's a lot of money, said Franci Rogers, the controller. ''But you know the turnover problem we've had with the welding crew, This machine would replace six welders at a cost savings of $113,000 per year. And we would save another $7,400 per year in reduced material waste. When you figure that the automated welder would last for six years, I'm sure the return would be greater than our 19% required rate of return.'' ''I'm still not convinced,'' countered Mr. Alder. ''We can only get $16,500 scrap value out of our old welding equipment if we sell it now, and in six years the new machine will only be worth $29,000 for parts. But have your people work up the figures and we?ll talk about them at the executive committee meeting tomorrow.'' Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the annual net cost savings promised by the automated welding machine
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