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Tiger Computers, Inc. is considering the purchase of an automated etching machine for use in the production of its circuit boards. The machine would cost
Tiger Computers, Inc. is considering the purchase of an automated etching machine for use in the production of its circuit boards. The machine would cost $900,000. An additional $650,000 would be required for installation costs and for software. Management believes that the automated machine would provide annual reduction in costs: Labor Costs $240,000 $96,000 Material Costs The new machine would require maintenance work to keep it properly adjusted. The company's engineers estimate that maintenance costs would increase by $51,000 per year if the machine were purchased. In addition, the machine would require a $90,000 overhaul at the end of the sixth year. The new etching machine would be usable for 6 years, after which it would be sold for its scrap value of $210,000. It would replace an old etching machine that can be sold now for its scrap value of $70,000. Tiger Computers, Inc., requires a rate of return of at least 12% on investments. Compute the net present value proposed by the new etching machine, using the tables below (Present Value of ($1.00 top): Present Value of Annuity (bottom): Compute the net present value proposed by the new etching machine, usir below (Present Value of ($1.00 top); Present Value of Annuity (bottom): Present Value Table Year 01 02 03 04 05 06 07 OS 09 (Present value of 8% 10% 092593 0.90909 85734 82654 79383 75131 73503 .68301 68058 62092 63017 56147 38349 51361 $4027 46651 50023 42410 46319 38554 12% 0.89286 .79719 .71178 ,63552 56743 .50663 45305 -40388 .36061 .32197 14% 0.87719 76947 .67497 59208 51937 45559 39964 35056 30874 26974 SR 208 1 2 3 4 5 6 1% 0.990 1.970 2.941 3.902 4.853 5.795 2% 0.980 1.942 2.884 3.808 4.713 5.601 396 0.971 1.913 2.829 3.717 4.580 5.417 5% 0.952 1.859 2.723 3.546 4.329 5.076 8% 0.926 1.783 2.577 3.312 3.993 4.623 10% 0.909 1.736 2.487 3.170 3.791 4.355 12% 0.893 1.690 2.402 3.037 3.605 4.111 15% 0.870 1.626 2.283 2.855 3.352 3.785
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