Required, part 2 section c, best solved through excel please include method of solving.
A company needs a modern material handling system for facilitating access to and from a busy warehouse. If the company's management use a MARR (given in the below table for each group) in their economic decisions. The company found two systems, the first system is a second-hand and the second system is a new system. The economic consequences of both systems are given in the below table for each group Make sure that you use the data for your GROUP to answer the following questions: PART1: For the second-hand system alternative: a) Draw the cash flow for the economic consequences b) Find the present worth, annual worth, future worth c) Find the internal rate of retum. d) Is the system economically justified? (explain why). e Calculate the simple and discounted payback periods. What are the annual savings required for the system to breakeven? PART 2: Considering the two mutually exclusive alternatives and assume permanent need for the system (repeatability assumption). a) Using any equivalency analysis technique of your choice (PW or FW or AW), which alternative should the b) Apply incremental analysis (rate of return technique) to determine the preferred alternative. c) Determine the unfavorable system's investment cost at which the company would be indifferent between alternatives. (For example, if when you analyze the problem, you pick the new system, determine the investment cost of the second-hand system that makes it on same level of economic desirability). Zoom MARR 10.4% Second-hand System Investment cost $79,500 Annual expenses $21,000 Annual savings $37.100 Useful life 8 years Salvage value $10,600 Investment cost Annual expenses First year savings Useful life Salvage value New System $115,500 31,800 $56,200 decreasing by $850 each year thereafter 16 years $25,800 per year A company needs a modern material handling system for facilitating access to and from a busy warehouse. If the company's management use a MARR (given in the below table for each group) in their economic decisions. The company found two systems, the first system is a second-hand and the second system is a new system. The economic consequences of both systems are given in the below table for each group. Make sure that you use the data for your GROUP to answer the following questions: PART1: For the second-hand system alternative: a) Draw the cash flow for the economic consequences. b) Find the present worth, annual worth, future worth. c) Find the internal rate of retum. d) Is the system economically justified? (explain why). e) Calculate the simple and discounted payback periods. What are the annual savings required for the system to breakeven? PART 2: Considering the two mutually exclusive alternatives and assume permanent need for the system (repeatability assumption) a) Using any equivalency analysis technique of your choice (PW or FW or AW), which alternative should the company pick? (explain why) b) Apply incremental analysis (rate of retum technique) to determine the preferred alternative. c) Determine the unfavorable system's investment cost at which the company would be indifferent between alternatives. (For example, if when you analyze the problem, you pick the new system, determine the investment cost of the second-hand system that makes it on same level of economic desirability). Zoom MARR + Second-hand System Investment cost $79,500 Annual expenses $21,000 Annual savings $37,100 Useful life 8 years Salvage value $10,600 Investment cost Annual expenses First year savings Useful life Salvage value New System $115,500 31,800 $56,200 decreasing by $850 each year thereafter 10.4% per year 16 years $25,800 Answer PART 2(b): The useful life of New system is 16 years The useful life of Second-hand system is 8 years. Hence we assume repeat of investment in Year 8. With this assumption we calculate below: 1. Cash flow of New system ii. Cash flow of second-hand system. iii. As new system has higher investment we calculate incremental cash flow of i over ii iv. Calculate IRR of incremental cash flow New System INCREMENTAL CASH FLOW . 2 . SIL SRL SIL SASSI S. 11 S. 5. SSL 51 14 15 22 25 IRR of incremental cash flow = 22.25% As the incremental cashflow has higher IRR than MARR, we would prefer New system. The above excel with 'show formula' is as below: New System INCREMENTAL CASH FLOW 41 - 103 . - 11 15.10 11.10 15 1916 RR MIM10
