I'm not sure we should lay out $355,000 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 $95,000 for software and installation, and another $61,200 per year just to maintain the thing. In addition, the manufacturer admits it would cost $58,000 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 $125,000 per year. And we would save another $8,600 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 16% required rate of return." I'm still not convinced," countered Mr. Alder. "We can only get $22,500 scrap value out of our old welding equipment if we sell it now, and in six years the new machine will only be worth $41,000 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 78-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the annual net cost savings promised by the automated welding machine. 20. Using the data from (1) above 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? EXHIBIT 70-1 Present Value of St. 5% Periods 4% 6% 84 99 10% 11% 12% 13% 14% 15% 25% 16% 17% 19% 18% 20% 215 22% 23% 1 0.962 0952 0943 0935 0926 0917 0909 0.901 0893 0885 0.877 0.870 0.862 0855 0.847 08400833 0.826 0820 08130806 0.800 2 0925 0907 0890 0.873 0857 0842 0826 0812 0797 0783 0769 0756 0743 0731 0.718 0706 0694 0683 0.672 0661 0650 0640 3 0889 0864 08400816 0794 0772 0751 0731 07120693 0675 0658 061 0624 0609 0593 0579 0564 0.551 0537 0524 0.512 4 0855 0823 0792 0763 0735 0708 0683 0659 0635 0613 0592 0.572 0552 0534 0516 0499 0482 0.467 0451 0437 0423 0.410 5 0.822 0784 0747 073 0681 0650 0621 0593 0567 056 0519 0497 0476 0.456 0437 04190402 0.386 0.370 0.355 0.341 0.328 6 0790 0746 0705 0666 0630 0596 0564 0535 0507 0480 0.456 0432 0410 0390 0.370 0352 0335 0 3190 303 0.289 0275 0.262 7 0760 071 0665 0623 0583 0547 053 0482 0452 0425 0.400 0376 0354 0333 0.314 0296 0279 0 263 0249 0235 0222 0210 0731 06770627 0582 0540 0502 04670434 0404 0.376 0351 0327 0305 0285 0 266 0249 0233 0218 0204 0191 0179 0168 9 07030645 0592 0544 05000460 0424 0391 0.361 0.333 0308 0284 0263 0243 0225 0209 0194 01800167 0.155 0.144 0134 10 0676 0614 0558 0508 0463 0.422 0386 0352 0322 0295 0270 0247 0227 0208 0191 0176 0162 014901370126 0.116 0107 11 0.650 0585 0527 0475 0429 038 035003170287 0261 0237 02150195 0178 0162 018 0135 01230112 0103 00940086 12 0.625 0.557 0.497 0444 0397 0356 0319 0286 0257 0231 0208 0187 0168 0152 0137 0124 0112 0102 0092 0083 0076 0069 13 0 601 0530 0469 04150368 0326 0 290 0.258 0229 0204 0182 0163 0145 01300156 09040093 0084 00750068 0.061 0.055 14 0.57 0.505 0.442 0388 0300 0.299 0 263 0232 0205 0181 01600141 0.1250111 0099 0088 0078 0069 0.062 0055 0.049 0044 15 0.555 0.481 0.41 0.362 03150275 0239 0209 0183 0160014001230108 0095 0084 0074 0065 0057 00510045 0.000 0.035 16 0.534 0.458 0.394 0339 0292 0252 021801880163 0141 012301070093 0.081 0.071 0062 0054 0047 0042 0036 0032 0028 17 0.53 0436 0.37 0.31 0270 0231 0198 01700146 01250108 0093 000 0069 0060 0052 0045 0039 0034 0030 0026 0023 0494 041 0350 0296 0 250 022 010 0153 0130 01110095 0.081 2059 0059 0051 0044 0038 0032 0028 0024 0021 0.018 19 0.475 0396 0.331 02 0232 0194 0164 0138 0116 0098 0083 0.070 050 0051 0.013 0037 0031 0027 0.023 0020 001 001 20 0.456 037 0312 0258 02150178 019 0124 0904 0087 0.073 0061 0.051 0013 0037 0031 0026 0022 0.01900160010012 21 0.039 0359 0294 0242 0199 0164 013501120093 0077 0064 0053 004 0037 0031 0.026 0022 0.018 00150013 0011 72 0009 0.422 042 0278 0226 014 0100123 090083 0068 0056 0046 008 0032 0.026 0022 0098 0015 0.013 0011 23 0606 0126 0262 0.211 0110 0118 0112 00090007 0.091 0014 0.060 0049 0000 0033 0027 0.022 0098 0.015 0.012 000 0009 0.007 0005 24 0390 0.30 0247 0197 0158 012602 0.082 0056 0053 000 0035 0078 0073 0019 00150013 000 0008 0.007 0006 0005 25 0375 0295 0233 090460160092 007 0059 004 0038 0030 0024 0020 00 001300 0009 0.007 0006 0.005 0004 26 0361 0281 0220 0172 01350106 0084 0066 0053 0042 0033 00200021 001 0.014 0011 0009 0007 0.006 0.005 0004 0.003 27 03410268 0207 0961 0050098 007 0060 004 0037 0029 0023 001 00100110.009 0007 0006 0.005 0004 0003 0002 28 0330 0255 0196 0150 0116 0090 0069 0054 0042 0033 0026 0020 00160012 0090 0.008 0006 0.005 0004 0.003 0.002 0002 29 0321 0243 015 0141 0107 0082 0063 0018 003 0029 0022 000 0010011 30 0308 02:31 0114 0.099 0075 0057 0044 0033 0026 0.020 00150012 0009 000 000 0004 0003 0.003 0.002 0.002 0.001 0008 0006 0005 0004 0003 0002 0002 0.002 40 0203 012 00910067 0046-0032 0022 0015 0.010008 0005 0.004 0000 0002 0001 000 000 0000 0000 0000 0000 0000 EXHIBIT 70-2 Present Value of an Annuity of $1 in Arrears: 6018 Periods 4 5% 6% 7 98 11 12% 13% 14 15% 16% 17 18% 196 20% 21% 22% 23% 24% 25% 1 09620952094 0935 0926 0917 0909 0 901 0.893 0885 0877 0.870 0862 0855 0.847 0840 033 0826 0.820 083 0806 0800 2 1886 1859 1833 THOG 1783 1736 1713 1690 1668 1647 1626 1605 158515661547 1528 15091492 1474 1457 1440 3 2775 2723 2673 2624 2577 2531 2487 2444 2402 2361 2322 2283 2246 2.210 217 2MO 2106 2074 2012 2011 1981 1962 4 3530 3546 3465 3382 3.312 320 370 3.902 3037 2974 2914 2855 2.798 273 2690 2639 2.589 2.540 2494 248 2404 2362 5 4452 43294212 4100 3.993 3.890 3791 3.696 3605 3517 333 3352 3274 3199 3127 3058 2991 2926 2854 2803 2745 2689 6 5242 5076 4917 4767 46234626 4355 4231 411 3.998 3.889 3784 365 3.589 3.498 3410 3326 3245 3.167 3092 3.020 2.951 7 60025786 558253895206 5033 4868 4712 4564 4423 4788 4160 4039 3.922 3812 370636053508 3416 3.327 32423.161 8 6733 6.653 6210 5.971 5747 5535 5335 5.46 4968 4799 4639 46743044207 4073954 3837 3.726 3619 3518 3.421 3329 9 7435 2008 6.802 6515 6 247 5.995 5759 5537 5328 512 49464772 4607 4451 4303 4163 40313905 378636733566 3463 10 8111 7722 7350 7024 6.710 6545 5889 5650 5.426 5206 5019 4833 4659 4494 4339 4192 40543923 3799 3682 1571 11 8760 8305 7887 74997139 6.805 6.695 6207 5938 5.687 5453 5234 5029 48364656 4485 4327 4177 40353902 37763656 12 938581638384 290 7536 7561 68M 6.492 6194 5.918 5.660 5421 5197 498 4793 4611 4439 4278 4127 3985 3851 3725 13 99869394 3853 858 7904 7487 7803 6750 6424 61225812 553 5342 5118 4910 4715 4531 4362 4203 4053 3912 3780 14 10563 9890 9.255 25 8214 7786 73675982 6 628 6 302 6002 5724 5468 5229 5008 4802 4611 4432 4265 408 3962 3824 15 11108 009712 99CR 8998061 7601 7191 6411 6 662 61025847 5575 5324 5092 4876 4675 4489 431541534001 3859 16 11652 10.838 10106 547 78247379 6974 6604 6.265 5954 5668 5405 51624938 47304536 4357 41894033 3887 17 2166 112740477 9763 9122 8544 8022 75497120 6729 6373 6047 5749 5.4755222 4990 4775 4576 4 391 4219 40593910 18 2659 11690 10 28 10 059 9312 8756 8201 702 7250 640 6467 5128 588553452735033 48124608 4419 424340803928 19 13134120451115 10336 9604 8.950 8365 7819 736 6918 65506198 5877 5584 5.316 5070 443 4635 442 4263 4097 3942 20 3590 12.662 1147005949878 919 8514 7563 7469 7025 6623 6259 5929 5628 5353 51014870 4657 44604279 4110 3.954 14029 12:21 11754 0836 100179292 8549 8075 75522102 66 675 973 5665 5284 527 48914675 4476 42924121396 22 14.651 1313 120121106110201 942 8712 81767645 2170 670 6359 60115696 5410 5449 4909 1690 4443024130 23 4857 13 09 12 303 11 212 10371 9580 3.970 8883 8266 7718 7230 6792 5.399 60615723 5832 557 4925 4034499411 4152 3975 15 241 299 2550 1146910529 9707 89858348 77847280685 6434 60735746 5.451 5182 493 470 4507 438 43981 25 15 622 4094 12783 1654 10675923 90778422786373306873646460975766 5.667 5155 4 948 4721 454 43734107 3.985 15983 M175 1300311826 00 9929 84789673726900 649 6118 5783 51805 206 4956 4728 4520 43284151 398 27 16 330 543 13 211 11587975 10027 9237 85 793 7409 6935 6514 613657985492 5215 4964 4734 4524 4332 41543990 16 663 14898 13.406 12137 1105110116 9307 602 70347441961 65146152 5810 5502 5223 490 47394528 43354157 3992 5598415141 351 12278 1158 10198 937086508072 7470598 6551 6166 5820 5510 5720 497544531413741593994 30 112325372 1375 12.409 11258 1021 907 8694 80557456700126566 6177 5829 551 5235 497947654534 419 41603995 40 1993 199 15046 13 332 11925 10757 9779 8951 824 7634 7105 6542 6213 58715518 57584997476045644 M 4166 3999