The plant manager of OBrien Equipment Company is considering the purchase of a new robotic assembly plant.

Question:

The plant manager of O’Brien Equipment Company is considering the purchase of a new robotic assembly plant. The new robotic line will cost $1,250,000. The manager believes that the new investment will result in direct labor savings of $250,000 per year for 10 years.

a. What is the payback period on this project?

b. What is the net present value, assuming a 10% rate of return?

c. What else should the manager consider in the analysis?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...