McGuire decides to start slow with a project testing the increased automation of their horse feed line. Below are the projected cost of the expansion in automation, given a 5 year useful life of the robotic equipment:

Direct 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 $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's inventory stored in their warehouse.

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

7) BPG's International Home Office in Cedar Rapids, Iowa expects a 16% return on any new investments in production.

Required:

How are your results affected if BPG only requires a 12% return on any new investments in production?