Postaudit, Sensitivity Analysis

OKAY FOLKS THE EXHIBITS ARE AT THE BOTTOM. I need an answer to #4 - a written answer I can at least use as a reference when writing my own.

For discount factors use Exhibit 14B-1 and Exhibit 14B-2.

Newmarge Products, Inc., is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at $860,000 and includes computerized equipment, software, and installation. There is no expected salvage value. The new system has a useful life of 8 years and is projected to produce cash operating savings of $225,000 per year over the old system (reducing labor costs and costs of processing and disposing of toxic waste). The cost of capital is 16%.

1. Compute the NPV of the new system. Round present value calculations and final NPV to the nearest dollar.

2. One year after implementation, the internal audit staff noted the following about the new system: (1) the cost of acquiring the system was $60,000 more than expected due to higher installation costs, and (2) the annual cost savings were $20,000 less than expected because more labor cost was needed than anticipated. Using the changes in expected costs and benefits, compute the NPV as if this information had been available 1 year ago. Round present value calculations and final NPV to the nearest dollar. Use the minus sign to indicate a negative NPV.

3. Conceptual Connection: Upon reporting the results mentioned in the postaudit, the marketing manager responded in a memo to the internal auditing department indicating that revenues had increased by $60,000 per year because of increased purchases by environmentally sensitive customers. What effect does this have on the analysis in Requirement 2?

4. Conceptual Connection: Why is a postaudit beneficial to a firm?

Postaudit, Sensitivity Analysis OKAY FOLKS THE EXHIBITS ARE AT THE BOTTOM. I need an answer to #4 - a written answer I can at least use as a reference when writing my own. For discount factors use Exhibit 14B-1 and Exhibit 14B-2. Newmarge Products, Inc., is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at $860,000 and includes computerized equipment, software, and installation. There is no expected salvage value. The new system has a useful life of 8 years and is projected to produce cash operating savings of $225,000 per year over the old system (reducing labor costs and costs of processing and disposing of toxic waste). The cost of capital is 16%. 1. Compute the NPV of the new system. Round present value calculations and final NPV to the nearest dollar. 4. Conceptual Connection: Why is a postaudit beneficial to a firm?3. Conceptual Connection: Upon reporting the results mentioned in the postaudit, the marketing manager responded in a memo to the internal auditing department indicating that revenues had increased by $60,000 per year because of increased purchases by environmentally sensitive customers. What effect does this have on the analysis in Requirement 2?2. One year after implementation, the internal audit staff noted the following about the new system: (1) the cost of acquiring the system was $60,000 more than expected due to higher installation costs, and (2) the annual cost savings were $20,000 less than expected because more labor cost was needed than anticipated. Using the changes in expected costs and benefits, compute the NPV as if this information had been available 1 year ago. Round present value calculations and final NPV to the nearest dollar. Use the minus sign to indicate a negative NPV