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 $ $1,850,000$

Installation and software $ $475,000$

Annual savings in inventory carrying costs $ $215,000$

Annual increase in power and maintenance costs $ $35,000$

Salvage value in $5$ years $ $75,000$

Useful life $5$ years

In addition to the data above, engineering studies suggest that use of the robot will result in a savings of $30,000$ direct labor$-$hours each year. The labor rate is $$16$ per hour. Also, the smoother work flow made possible by the use of automation will allow the company to reduce the amount of inventory on hand by $$405,000.$ 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 $19\%$ required rate of return.

Click here to view Exhibit $14$B$-1$ and Exhibit $14$B$-2,$ to determine the appropriate discount factor$($s$)$ using tables.

Required:

$1.$ Determine the annual net cost savings if the robot is purchased. $($Do not include the $$405,000$ 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 $$80,000$ more than estimated and direct labor could only be reduced by $25,000$ hours per year, rather than the original estimate of $30,000$ 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 $19\%$ rate of return.