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ECONOMICS HOMEWORK APPLICATION and CHALLENGING QUESTIONS 1. Brockville Brackets (BB) has a three-year-old robot that welds small brackets onto carframe assemblies. At the time the robot was purchased, it cost $300 000 and an additional $50 000 was spent on installation, BB acquired the robot as part of an eight-year contract to produce the car-frame assemblies. The useful life of the robot is 12 years, and its value is estimated to decline by 20 percent of the current value per year, as shown in the first table below. Operating and maintenance costs estimated when the robot was purchased are also shown in the table. BB has found that the operating and maintenance costs for the robot have been higher than anticipated. At the end of the third year, new estimates of the operating and maintenance costs are shown in the second table on the next page. BB has determined that the reason the operating and maintenance costs were in error was that the robot was positioned too close to existing equipment for the mechanics to repair it easily and quickly. BB is considering moving the robot farther away from some adjacent equipment so that mechanics can get easier access for repairs. To move the robot will cause BB to lose valuable production time, which is estimated to have a cost of $25 000. However, once complete, the move will lower maintenance costs to what had originally been expected for the remainder of the contract (e.g., $40 000 for the fourth year, increasing by 10 percent per year thereafter). Moving the robot will not affect its salvage value. Defender, When New Life (Years) 0 Operating and Maintenance Costs 1 2 3 S40 000 40 000 40 000 40 000 4 5 Salvage Value S300 000 2-40 000 192 000 153 600 122 880 98 30+ 78 643 62 915 SO 332 40 265 32 212 25 770 20 616 7 8 44 000 48 400 53 240 58 564 64 420 70 862 77 949 85 744 10 11 12 Costs for Three-Year-Old Defender Operating and Additi Saba Value Maintenance Costs for Three-Year-Old Defender Operating and Additional Life (Years) Salvage Value Maintenance Costs $153600 122 880 $50 000 98 304 55 000 78 643 60 500 4 62 915 66 550 5 50332 73 205 2 3 SY2020ECEF2 If BB uses a MARR of 15 percent, should it move the robot? (5 POINTS) 3-year-old Defender: Additional EAC EAC year's Salvage Maintenance Capital Maintenance EAC Total EAC(total costs) of keeping the robot: years is S. b) If so, when? Remember that the contract exists only for a further five years. (10 POINTS) Challenger (Move Robot): Additional EAC EAC Salvage Maintenance Capital Maintenance Total FAC Year's The cost of keeping the defender one more year is S. For two years, the cost is S... There is ..... number of additional years in the to keep. Therefore, the robot should be year horizon for which the defender is ECONOMICS HOMEWORK APPLICATION and CHALLENGING QUESTIONS 1. Brockville Brackets (BB) has a three-year-old robot that welds small brackets onto carframe assemblies. At the time the robot was purchased, it cost $300 000 and an additional $50 000 was spent on installation, BB acquired the robot as part of an eight-year contract to produce the car-frame assemblies. The useful life of the robot is 12 years, and its value is estimated to decline by 20 percent of the current value per year, as shown in the first table below. Operating and maintenance costs estimated when the robot was purchased are also shown in the table. BB has found that the operating and maintenance costs for the robot have been higher than anticipated. At the end of the third year, new estimates of the operating and maintenance costs are shown in the second table on the next page. BB has determined that the reason the operating and maintenance costs were in error was that the robot was positioned too close to existing equipment for the mechanics to repair it easily and quickly. BB is considering moving the robot farther away from some adjacent equipment so that mechanics can get easier access for repairs. To move the robot will cause BB to lose valuable production time, which is estimated to have a cost of $25 000. However, once complete, the move will lower maintenance costs to what had originally been expected for the remainder of the contract (e.g., $40 000 for the fourth year, increasing by 10 percent per year thereafter). Moving the robot will not affect its salvage value. Defender, When New Life (Years) 0 Operating and Maintenance Costs 1 2 3 S40 000 40 000 40 000 40 000 4 5 Salvage Value S300 000 2-40 000 192 000 153 600 122 880 98 30+ 78 643 62 915 SO 332 40 265 32 212 25 770 20 616 7 8 44 000 48 400 53 240 58 564 64 420 70 862 77 949 85 744 10 11 12 Costs for Three-Year-Old Defender Operating and Additi Saba Value Maintenance Costs for Three-Year-Old Defender Operating and Additional Life (Years) Salvage Value Maintenance Costs $153600 122 880 $50 000 98 304 55 000 78 643 60 500 4 62 915 66 550 5 50332 73 205 2 3 SY2020ECEF2 If BB uses a MARR of 15 percent, should it move the robot? (5 POINTS) 3-year-old Defender: Additional EAC EAC year's Salvage Maintenance Capital Maintenance EAC Total EAC(total costs) of keeping the robot: years is S. b) If so, when? Remember that the contract exists only for a further five years. (10 POINTS) Challenger (Move Robot): Additional EAC EAC Salvage Maintenance Capital Maintenance Total FAC Year's The cost of keeping the defender one more year is S. For two years, the cost is S... There is ..... number of additional years in the to keep. Therefore, the robot should be year horizon for which the defender is