m not sure we should lay out $265,000 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 $75,000 for software and installation, and another $3,100 every month just to maintain the thing. In addition, the manufacturer admits that it would cost $38,000 more at the end of three years to replace worn-out parts." 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 $105,000 per year. And we would save another $6,600 per year in reduced material waste. When you figure that the automated welder would last for six years 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 $12,500 scrap value out of our old welding equipment if we sell it now, and in six years the new machine will only be worth $21,000 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 Reduction in labor costs Reduction in material waste Total Less increased maintenance costs S Annual net cost savings