Saxon Products, Incorporated, is investigating the purchase of a robot for use on the company's assembly line. Selected data relating

to the robot are provided below:

Cost of the Robot $$1,600,000$

Installation and Software $$410,000$

Annual savings in inventory carrying costs $$223,000$

Annual increase in power and maintenance costs $$43,000$

Salvage value in $5$ years $$72,000$

Useful Life $5$ Years

In additioAnnual savings in inventorAnnual savings in inventory carrying costs,y carrying costskn to the data above, engineering studies suggest that use of the robot will result in a savings of $24,000$ direct labor$-$hours each year. The labor rate is $$15$ per hour. Also, the smoother work flow made possible by the use of automation will allow the company to reduce the amount of inventory on hand by $$413,000.$ This inventory reduction will take place at the end of the first year of

operation; the released funds will be available for use elsewhere in the company. Saxon Products has a $18\%$ required rate of return.

Required:

Determine the annual net cost savings if the robot is purchased. $($Do not include the $$413,000$ inventory reduction or the salvage

value in this computation.$)$

$2-$a$.$ Compute the net present value of the proposed investment in the robot.

$2-$b$.$ Based on these data, would you recommend that the robot be purchased?

$3-$a$.$ Assume that the robot is purchased. However, due to unforeseen problems, software and installation costs were $$88,000$ more

than estimated and direct labor could only be reduced by $19,000$ hours per year, rather than the original estimate of $24,000$ hours.

Assuming that all other cost data is accurate, what would a postaudit suggest is the actual net present value of this investment?

$3-$b$.$ Does it appear that the company made a wise investment?

$4-$a$.$ Which of the following are intangible benefits associated with the new automated equipment?

$4-$b$.$ Based on your analysis in Requirement $3$ above, compute for the president the minimum dollar amount of annual cash inflow that

would be needed from the benefits in part $4($a$)$ for the automated equipment to yield a $18\%$ rate of return.