Section 3: Capital Expenditure and Sustainability One of Example mg main competitor has been inciting a price war as they managed to import cheap products that are well below Example W lll product cost. A. production manager of Example Ltd} has proposed investment in advanced technology to reduce labour costs while increasing production volume and product consistency. Information about the proposed project is as follows: II 354500.000 investment in new equipment is required. The equipment has an estimated useful life of 3 years and no residual value. II The existing equipment can be sold for a current market value of $200,000. II The new equipment will be able to automate parts of production, assembly and inspection, making eight employees redundant. There is an estimated cost savings of 3420.000 per year 'om thejob cuts. II Expected incremental revenue of 3550.000 per year due to greater production volume and higher product quality and consistency. II There will be additional maintenance costs of $100,000 per year. Example Ltd requires a rate of return of 3%- Ignore tax implications. Required: 1. Compute the following for the proposal (present value tables are available on the next page): [a] Net present value. (b) lntemal rate of return. [c] Payback period. [d] Accounting rate of return with initial investment as the denominator. 2. Describe three qualitative considerations that the managers should consider in making the decision. PVIF (n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.942 0.888 0.837 0.790 0.746 0705 0.666 0.630 0.596 0.564 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424 10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386 11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319 13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290 14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263 15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239 16 0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.218 17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.231 0.198 18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180 19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164 20 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.178 0.149 PVIFA (n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 12 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824 17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022 18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 19 17.226 15.679 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 20 18.046 16.351 14.878 13.590 12.462 11.470 10.594 9.818 9.129 8.514