"I'm not sure we should lay out $300,000 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 $84,000 for software and installation, and another $48,000 per year just to maintain the thing. In addition, the manufacturer admits it would cost $47,000 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 $114,000 per year. And we would save another $7,500 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 17% required rate of return." "I'm still not convinced," countered Mr. Alder. "We can only get $17,000 scrap value out of our old welding equipment if we sell it now, and in six years the new machine will only be worth $30,000 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 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the annual net cost savings promised by the automated welding machine. 2a. Using the data from Required 1 and other data from the problem, compute the automated welding machine's net present value. 2b. Would you recommend purchasing the automated welding machine? 3. Assume that management can identify several intangible benefits associated with the automated welding machine, including greater flexibility in shifting from one type of product to another, improved quality of output, and faster delivery as a result of reduced throughput time. What minimum dollar value per year would management have to attach to these intangible benefits in order to make the new welding machine an acceptable investment? Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Req 3 Compute the annual net cost savings promised by the automated welding machine. Annual net cost savings EXHIBIT 12B-1 Present Value of $1: 1 (1+r)" Periods 4% 5% 6% 7% 8% 9% 1 0.962 0.952 0.943 0.935 0.926 0.917 0.909 2 0.925 0.907 0.890 0.873 0.857 0.842 0.826 3 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 4 0.855 0.823 0.792 0.763 0.735 0.708 0.683 5 0.822 0.784 0.747 0.713 0.681 0.650 0.621 6 0.790 0.746 0.705 0.666 0.630 0.596 0.564 7 0.760 0.711 0.665 0.623 0.583 0.547 0.513 8 0.731 0.677 0.627 0.582 0.540 0.502 0.467 9 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.391 10 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 11 12 13 0.601 0.650 0.585 0.527 0.475 0.429 0.625 0.557 0.497 0.444 0.397 0.530 0.469 0.415 0.368 0.388 0.350 0.317 14 0.577 0.505 0.442 0.388 0.340 15 0.555 0.481 0.417 0.362 0.315 0.356 0.319 0.326 0.290 0.299 0.263 0.275 0.286 0.257 0.258 0.229 16 0.534 0.458 0.394 17 0.513 0.339 0.292 0.436 0.371 0.317 0.270 0.252 0.218 0.188 0.163 0.141 0.123 0.231 0.198 0.170 0.146 0.125 0.108 18 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0.111 0.095 10% 11% 12% 13% 14% 15% 16% 17% 18% 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.231 0.208 0.187 0.168 0.152 0.137 0.204 0.182 0.163 0.145 0.130 0.116 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.239 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.107 0.093 0.081 0.071 0.093 0.080 0.069 0.060 0.081 0.069 0.059 0.051 19 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 0.098 0.083 20 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 0.087 0.073 21 0.439 0.359 0.294 0.242 0.199 0.164 0.135 0.112 22 0.422 0.342 0.278 0.226 0.184 0.150 0.123 0.101 0.083 23 0.406 0.326 0.262 0.211 0.170 0.138 0.112 0.091 0.074 24 25 0.390 0.310 0.247 0.197 0.375 0.295 0.233 0.184 0.146 0.158 0.126 0.102 0.082 0.066 0.116 0.092 26 0.361 0.281 0.220 0.172 0.135 0.106 27 0.347 28 0.333 0.268 0.207 0.161 0.255 0.196 0.150 0.125 0.098 0.076 0.074 0.084 0.066 0.060 0.116 0.090 0.069 0.054 29 0.321 0.243 0.185 0.141 0.107 0.082 0.063 0.048 30 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.037 0.029 0.033 0.026 40 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0.011 0.093 0.077 0.064 0.068 0.056 0.060 0.049 0.053 0.043 0.059 0.047 0.038 0.053 0.042 0.033 0.047 0.037 0.029 0.042 0.033 0.026 0.022 0.020 0.008 0.005 0.070 0.060 0.051 0.043 0.061 0.051 0.043 0.037 0.053 0.044 0.037 0.031 0.046 0.038 0.032 0.026 0.040 0.033 0.027 0.022 0.035 0.028 0.023 0.019 0.030 0.024 0.020 0.016 0.026 0.021 0.017 0.014 0.023 0.018 0.014 0.011 0.020 0.016 0.012 0.010 0.017 0.014 0.011 0.008 0.015 0.012 0.009 0.007 0.004 0.003 0.002 0.001 EXHIBIT 12B-2 Present Value of an Annuity of $1 in Arrears; 1/r(1-(1/(1+r)^n)) 1 Periods 4% 0.962 5% 0.952 0.943 6% 7% 0.935 2 1.886 1.859 1.833 1.808 3 2.775 2.723 2.673 2.624 4 3.630 3.546 3.465 3.387 3.312 5 4.452 4.329 4.212 4.100 3.993 6 5.242 5.076 4.917 4.767 4.623 4.486 7 6.002 5.786 5.582 5.389 5.206 8 6.733 6.463 6.210 5.971 9 7.435 7.108 6.802 6.515 10 8.111 7.722 7.360 7.024 11 8.760 12 8.306 7.887 9.385 8.863 8.384 7.943 7.499 7.536 7.161 13 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 14 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 15 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 16 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 17 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.549 18 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.702 19 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 20 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.963 21 14.029 12.821 11.764 10.836 10.017 9.292 8.649 8.075 22 14.451 13.163 12.042 11.061 10.201 | 9.442 8.772 8.176 23 14.857 13.489 12.303 11.272 10.371 9.580 8.883 8.266 24 25 26 15.247 13.799 12.550 11.469 10.529 9.707 15.622 14.094 12.783 11.654 10.675 9.823 15.983 14.375 13.003 11.826 8.985 8.348 9.077 27 10.810 | 9.929 16.330 14.643 13.211 11.987 10.935 10.027 9.161 9.237 28 16.663 14.898 13.406 12.137 11.051 10.116 9.307 29 16.984 15.141 13.591 12.278 11.158 10.198 9.370 30 17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.694 8.422 7.843 8.488 7.896 8.548 7.943 8.602 7.984 8.650 8.022 8.055 8% 9% 10% 11% 12% 13% 0.926 0.917 0.909 0.901 0.893 0.885 0.870 0.862 0.855 1.783 1.759 1.736 1.713 1.690 1.668 1.647 1.626 1.605 1.585 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 7.139 6.805 6.495 6.207 5.938 5.687 5.453 5.234 5.029 4.836 6.814 6.492 6.194 5.918 5.660 5.421 5.197 4.988 6.424 6.122 5.842 5.583 5.342 5.118 6.628 6.302 6.002 5.724 5.468 5.229 6.811 6.462 6.142 5.847 5.575 5.324 6.974 6.604 6.265 5.954 5.668 5.405 7.120 6.729 6.373 6.047 5.749 5.475 7.250 6.840 6.467 6.128 5.818 5.534 7.366 6.938 6.550 6.198 5.877 5.584 6.259 5.929 5.628 6.687 6.312 5.973 5.665 7.645 7.170 6.743 6.359 6.011 7.718 7.230 6.792 6.399 6.044 7.784 7.283 6.835 6.434 7.330 6.873 6.464 6.097 5.766 7.372 6.906 6.491 6.118 5.783 7.409 6.935 6.514 6.136 5.798 7.441 6.961 6.534 6.152 5.810 7.470 6.983 6.551 6.166 5.820 7.496 7.003 6.566 6.177 14% 15% 16% 17% 0.877 7.469 7.025 6.623 7.562 7.102 5.696 5.723 6.073 5.746 5.829 40 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.951 8.244 7.634 7.105 6.642 6.233 5.871