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 $5,100 every month just to maintain the thing. In addition, the manufacturer admits that 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 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 Annual net cost savings