ROR ANALYSIS WITH ESTIMATED LIVES THAT VARY Background Make-to-Specs is a software system under development by ABC Corporation. It will be able to translate digital versions of three-dimensional computer models, containing a wide variety of part shapes with machined and highly finished (ultra smooth) surfaces. The product of the system is the numerically controlled (NC) machine code for the parts manufacturing. Additionally, Make-to-Specs will build the code for superfine finishing of surfaces with continuous control of the finishing machines. Information There are two alternative computers that can provide the server function for the software interfaces and shared database updates on the manufacturing floor while Make-to- Specs is operating in parallel mode. The server first cost and estimated contribution to annual net cash flow are summarized below. Server 1 Server 2 First cost, $ 100,000 200,000 Net cash flow, $/year 35,000 50,000 year 1, plus 5000 per years 2, 3, and 4 (gradient) 70,000 maximum for years 5 on, even if the server is replaced Life, years 3 or 4 5 or 8 The life estimates were developed by two different individuals: a design engineer and a manufacturing manager. They have asked that, at this stage of the project, all analyses be performed using both life estimates for each system. Case Study Exercises Use spreadsheet analysis to determine the following:

1. If the MARR = 12%, which server should be selected? Use the PW or AW method to make the selection.

2. Use incremental ROR analysis to decide between the servers at MARR = 12%.

3. Use any method of economic analysis to display on the spreadsheet the value of the incremental ROR between server 2 with a life estimate of 5 years and a life estimate of 8 years.

CASE STUDY ROR ANALYSIS WITH ESTIMATED LIVES THAT VARY Background The life estimates were developed by two different individuals: a design engineer and a manufacturing manager. They have Make-to-Specs is a software system under development by asked that, at this stage of the project, all analyses be performed ABC Corporation. It will be able to translate digital versions of using both life estimates for each system. three-dimensional computer models, containing a wide variety of part shapes with machined and highly finished (ultra- Case Study Exercises smooth) surfaces. The product of the system is the numerically controlled (NC) machine code for the part's manufacturing Use spreadsheet analysis to determine the following: Additionally, Make-to-Specs will build the code for superfine 1. If the MARR = 12%, which server should be selected? finishing of surfaces with continuous control of the finishing Use the PW or AW method to make the selection. machines 2. Use Incremental ROR analysis to decide between the servers at MARR = 12% Information 3. Use any method of economic analysis to display on the spreadsheet the value of the incremental ROR between There are two alternative computers that can provide the server 2 with a life estimate of 5 years and a life estimate server function for the software Interfaces and shared da- of 8 years. tabase updates on the manufacturing floor while Make-to- Specs is operating in parallel mode. The server first cost and estimated contribution to annual net cash flow are summarized below. Server 1 Server 2 First cost $ Net cash flow. $/year 100,000 35,000 200,000 50,000 year 1. plus 5000 per year for years 2.3, and 4 (gradient) 70,000 maximum for years 5 on, even if the server is replaced 5 or 8 Life, years 3 or 4