Jack McGuire has been with Bulk Productions Group $($BPG$)$ for $14$ years. BPG produces a

variety of custom livestock feeds used in the agricultural industry. He was recently promoted to

plant controller at BGP$\text{'}$s Midwest facility located in Ithaca, Michigan. During his first week in

the Ithaca plant, he began to analyze the cost efficiencies of the current level direct labor and

automation costs at BPG$\text{'}$s production site.

McGuire decides to start slow with a project testing the increased automation of their horse feed

line. Below are the projected costs of the expansion in automation, given a $5-$year useful life of

the robotic equipment:

Cost of Automation

Purchase price of new robotic equipment $$1,450,000$

Sales tax on equipment $$87,000$

Shipping cost of equipment $$63,000$

Equipment installation $$175,000$

Software $$98,000$

Initial system and equipment testing $$25,000$

Equipment scrap value after five years $$70,000$

Annual Warranty Service Contract $$21,000$

Other information:

$1)$ The robotics proposal will eliminate one plant supervisor position with a salary of $$98,000$ per

year.

$2)$ Two machine maintenance workers will need to be hired at a salary of $$41,000$ each.

$3)$ The automation and related electronics will increase energy usage by $$126,000$ per year.

$4)$ The software will create an expected savings of $$210,000$ per year due to a reduction in

inventory spoilage.

$5)$ Automation efficiencies will create a one$-$time $$150,000$ cost reduction in BPG$\text{'}$s inventory

stored in their warehouse.

$6)$ Automation will replace $25,000$ labor hours annually, costing $$16$ per hour.

$7)$ BPG$\text{'}$s International Home Office in Cedar Rapids, Iowa expects a $16\%$ return on any new

investments in production.

Required:

$1)$ Ignoring present value concepts, what are the annual net cost savings if BPG further

automates their production for horse feed?

$2)$ Create a table showing the total initial cash flows for the investment in equipment, as well as

all changes in cash flows for years one through five.

$3)$ Summarize the net present value of all cost, comparing the cost of expanding automation to

the cost of $25,000$ labor hours. Given the net present value of the two alternatives, should BPG

expand automation to the horse feed operation? Discuss your results. This discussion is well

beyond just the numbers...what do these results mean? How will accepting or rejecting this

project affect the company's future $($discuss all aspects of the change, not just cost$)?$

$4)$ How are your results affected if BPG only requires a $12\%$ return on any new investments in

production?

The case is due Friday April $26$thth$,$ and must be sub