QUESTION B (b) AT THE BOTTOM

Swifty Company manufactures automobile components for the worldwide market. The company has three large production facilities in Virginia, New Jersey, and California, which have been operating for many years. Brett Harker, vice president of production, believes it is time to upgrade operations by implementing computer-integrated manufacturing (CIM) at one of the plants. Brett has asked corporate controller Connie Carson to gather information about the costs and benefits of implementing CIM. Carson has gathered the following data:

Initial equipment cost		$	7,452,000
Working capital required at start-up		$	600,000
Salvage value of existing equipment		$	93,150
Annual operating cost savings		$	1,043,280
Salvage value of new equipment at end of its useful life		$	248,400
Working capital released at end of its useful life		$	600,000
Useful life of equipment			10 years

Swifty Company uses a 12% discount rate. Click here to view the factor table.

(a)

• Correct Answer -

  $(1,790,924)

Calculate the net present value of Swiftys proposed investment in CIM. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971. Enter negative amounts using a negative sign preceding the number, e.g. -59,991 or parentheses, e.g. (59,991).)

Net present value

enter the net present value in dollars rounded to 0 decimal places

Cash Flow		Timing	Amount		12% PV Factor			Present Value
Purchase price		Year 0	$(7,452,000)		1.0000			$(7,452,000)
Working capital		Year 0	(600,000)		1.0000			(600,000)
Salvage value, old		Year 0	93,150		1.0000			93,150
Operating cost savings		Years 1-10	1,043,280		5.6502			5,894,741
Working capital released		Year 10	600,000		0.3220			193,200
Salvage value, new		Year 10	248,400		0.3220			79,985
Net present value								$(1,790,924)

Attempts: 3 of 3 used

(b)

Use Excel or a similar spreadsheet application to calculate the internal rate of return on Swiftys proposed investment. (Round internal rate of return to 2 decimal places, e.g. 15.25%.)

Internal rate of return

enter internal rate of return in percentages rounded to 2 decimal places %