Before the company is put up for sale, Gardenia plans to invest ina new production robot,...
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Before the company is put up for sale, Gardenia plans to invest ina new production robot, which can perform several production processes. The aim is to achieve cost reductions through lower wage costs. 1 For that purpose, Gardenia has hired a consultancy firm to analyse which production processes that can be automated. The consultancy firm has also done research on the market for production robots and has recommended a specific production robot that suits the needs of Gardenia. The consultancy firm has charged a fee of 200,000 DKK for its services, which shall be payed within 3 months. The recommended production robot has a cash price of 2,000,000 DKK and an optimal lifetime of 6 years. After 6 years it will have an expected scrap value of 200,000 DKK. Based on an analysis related to the operation costs The hourly wage is 200 DKK. sts then following information has been estimated. Saving of labour hours yearly, 1,250., holiday benefits, pension and administration cost is 40 pct. On top of that. Savings in time for maintenance and parts are estimated to have a value of 100,000 DKK per year. The company normally uses a discount rate of 10%. Before any calculations have been made, there is controversy in the financial department over whether the included in the analysis An employ ee argues that because the fee is directly caused by this project, it 3.1 Read the above description.caredly and identify which payments are of any relevance to the investment decision. Create a schedule showing the payments for each year and calculate the investment's NPV. (Tables with discount factors are available to you -see next page) 3.2 Decide whether the company should go ahead and invest in the new robot. if you did not complete question 3.1. just explain how you would conclude in this regard? 3.3 Discuss and briefly explain the connection between the RRR(required rate of return), the NPV (net present value) and the IRR (internal rate of return). 3.4 Based on the calculation take a discussion of the inmvestment in the new robot. What are the consequences for the company if they decide to invest in the robot? Focus Table data for Question 3 (choose the necessary data from the relevant table) Interest table showing the future value in period t of DKK 1,- paid today that is: (1+r) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 13% 14% 12% 1,12 1,13 1,14 1,01 1,05 1,06 1,07 1,08 1,09 1,10 11% 1,11 1,23 1,25 1,28 1,30 1,02 1,03 1,04 1,04 1,06 1,08 1,02 1,10 1,12 1,14 1,17 1,19 1,21 1,48 1,69 1,75 1,93 2,01 2,31 2,35 2,66 2,66 2,85 3,06 3 1,03 1,06 1,09 1,12 1,16 1,19 1,23 1,26 1,30 1,33 1,37 1,40 1,44 4 1,04 1,08 1,13 1,17 1,22 1,26 1,31 1,36 1,41 1,46 1,52 1,57 1,63 5 1,05 1,10 1,16 1,22 1,28 1,34 1,40 1,47 1,54 1,61 1,69 1,76 1,84 6 1,06 1,13 1,19 1,27 1,34 1,42 1,50 1,59 1,68 1,77 1,87 1,97 2,08 2,19 7 1,07 1,15 1,23 1,32 1,41 1,50 1,61 1,71 1,83 1,95 2,08 2,21 2,50 8 1,08 1,17 1,27 1,37 1,48 1,59 1,72 1,85 1,99 2,14 2,30 2,48 9 1,09 1,20 1,30 1,42 1,55 1,69 1,84 2,00 2,17 2,36 2,56 10 1,10 1,22 1,34 1,48 1,63 1,79 1,97 2,16 2,37 2,59 2,84 11 1,12 1,24 1,38 1,54 1,71 1,90 2,10 2,33 2,58 2,85 3,15 12 1,13 1,27 1,43 1,60 1,80 2,01 2,25 2,52 2,81 3,14 3,50 3,90 4,33 4,82 13 1,14 1,29 1,47 1,67 1,89 2,13 2,41 2,72 3,07 3,45 3,88 4,36 4,90 5.49 14 1,15 1,32 1,51 1,73 1,98 2,26 2,58 2,94 3,34 3,80 4,31 4,89 5,53 6,26 7,08 15 1,16 1.35 1,56 1,80 2,08 2,40 2,76 3,17 3,64 4,18 4,78 5.47 2,77 3,00 3.25 3,52 3,11 3,39 3,71 4,05 3,48 3,84 4,23 4,65 5,35 6,15 6.25 7.14 8,14 t: 1 2 5% 6% 7% Interest table showing the present value of DKK 1,- paid at the end of period t 1% 2% 3% 4% 8% 9% 0,99 0,98 0,97 0,96 0,95 0,94 0,93 0,93 0,92 0,89 0,87 0,86 0,84 0,82 0,79 0,77 0,98 0,97 0,96 0,94 0,92 0,91 0,94 0,92 0,89 0,86 0,92 0,89 0,85 0,84 0,96 0,82 0,79 0,76 0,74 0,71 0,78 0,75 0,71 0,68 0,65 0,75 0,70 0,67 7 0,62 8 0,58 0,95 0,91 0,86 0,82 0,94 0,89 0,84 0,79 0,93 0,87 0,81 0,76 0,71 0,67 0,92 0,85 0,79 0,73 0,68 0,63 9 0,91 0,84 0,77 0,70 0,64 0,59 0,82 0.74 0,68 0,61 0,56 0,51 0,65 0,58 0,53 0,48 0,62 0,56 0,50 0,44 0,40 0,36 0,54 0,50 10 0,91 0,42 0,46 0,43 0.39 11 0,90 0,80 0,72 12 0,89 0,79 0,70 13 0,88 0,77 0.68 0,60 0,53 0,47 0,41 0,37 0,33 14 0,87 0,76 0,66 0,58 0,51 0,44 0,39 0,34 0,30 15 0,86 0.74 0,64 0,56 0.48 0.42 0,36 0,32 0,27 t: 1 2 3 4 5 6 0,63 0,60 0,56 0,58 0,54 0,55 0,51 0,48 0,47 0,43 0,42 0,50 0,46 15% that is: (1+r) 10% 11% 12% 13% 14% 15% 0,91 0,90 0,89 0,88 0,88 0,87 0,83 0,81 0,80 0,78 0,77 0,76 0,75 0,73 0,71 0,69 0,67 0,68 0,66 0,64 0,61 0,59 0,62 0,59 0,53 0,66 0.57 0,57 0,54 0,52 0,50 0,51 0,46 0,43 0,45 0,40 0,38 0,40 0,38 0,35 0.33 0,39 0,36 0,33 0,31 0,28 0,39 0,35 0,32 0,29 0,27 0.25 0,29 0,26 0,24 0,21 0,26 0,23 0,21 0,19 0,35 0,32 0,32 0,29 0,29 0,26 0,23 0,20 0,18 0,16 0,26 0,23 0,20 0,18 0,16 0,14 0,24 0.21 0.18 0.16 0.14 0.12 0,48 0,43 1,15 1,32 1,52 Before the company is put up for sale, Gardenia plans to invest ina new production robot, which can perform several production processes. The aim is to achieve cost reductions through lower wage costs. 1 For that purpose, Gardenia has hired a consultancy firm to analyse which production processes that can be automated. The consultancy firm has also done research on the market for production robots and has recommended a specific production robot that suits the needs of Gardenia. The consultancy firm has charged a fee of 200,000 DKK for its services, which shall be payed within 3 months. The recommended production robot has a cash price of 2,000,000 DKK and an optimal lifetime of 6 years. After 6 years it will have an expected scrap value of 200,000 DKK. Based on an analysis related to the operation costs The hourly wage is 200 DKK. sts then following information has been estimated. Saving of labour hours yearly, 1,250., holiday benefits, pension and administration cost is 40 pct. On top of that. Savings in time for maintenance and parts are estimated to have a value of 100,000 DKK per year. The company normally uses a discount rate of 10%. Before any calculations have been made, there is controversy in the financial department over whether the included in the analysis An employ ee argues that because the fee is directly caused by this project, it 3.1 Read the above description.caredly and identify which payments are of any relevance to the investment decision. Create a schedule showing the payments for each year and calculate the investment's NPV. (Tables with discount factors are available to you -see next page) 3.2 Decide whether the company should go ahead and invest in the new robot. if you did not complete question 3.1. just explain how you would conclude in this regard? 3.3 Discuss and briefly explain the connection between the RRR(required rate of return), the NPV (net present value) and the IRR (internal rate of return). 3.4 Based on the calculation take a discussion of the inmvestment in the new robot. What are the consequences for the company if they decide to invest in the robot? Focus Table data for Question 3 (choose the necessary data from the relevant table) Interest table showing the future value in period t of DKK 1,- paid today that is: (1+r) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 13% 14% 12% 1,12 1,13 1,14 1,01 1,05 1,06 1,07 1,08 1,09 1,10 11% 1,11 1,23 1,25 1,28 1,30 1,02 1,03 1,04 1,04 1,06 1,08 1,02 1,10 1,12 1,14 1,17 1,19 1,21 1,48 1,69 1,75 1,93 2,01 2,31 2,35 2,66 2,66 2,85 3,06 3 1,03 1,06 1,09 1,12 1,16 1,19 1,23 1,26 1,30 1,33 1,37 1,40 1,44 4 1,04 1,08 1,13 1,17 1,22 1,26 1,31 1,36 1,41 1,46 1,52 1,57 1,63 5 1,05 1,10 1,16 1,22 1,28 1,34 1,40 1,47 1,54 1,61 1,69 1,76 1,84 6 1,06 1,13 1,19 1,27 1,34 1,42 1,50 1,59 1,68 1,77 1,87 1,97 2,08 2,19 7 1,07 1,15 1,23 1,32 1,41 1,50 1,61 1,71 1,83 1,95 2,08 2,21 2,50 8 1,08 1,17 1,27 1,37 1,48 1,59 1,72 1,85 1,99 2,14 2,30 2,48 9 1,09 1,20 1,30 1,42 1,55 1,69 1,84 2,00 2,17 2,36 2,56 10 1,10 1,22 1,34 1,48 1,63 1,79 1,97 2,16 2,37 2,59 2,84 11 1,12 1,24 1,38 1,54 1,71 1,90 2,10 2,33 2,58 2,85 3,15 12 1,13 1,27 1,43 1,60 1,80 2,01 2,25 2,52 2,81 3,14 3,50 3,90 4,33 4,82 13 1,14 1,29 1,47 1,67 1,89 2,13 2,41 2,72 3,07 3,45 3,88 4,36 4,90 5.49 14 1,15 1,32 1,51 1,73 1,98 2,26 2,58 2,94 3,34 3,80 4,31 4,89 5,53 6,26 7,08 15 1,16 1.35 1,56 1,80 2,08 2,40 2,76 3,17 3,64 4,18 4,78 5.47 2,77 3,00 3.25 3,52 3,11 3,39 3,71 4,05 3,48 3,84 4,23 4,65 5,35 6,15 6.25 7.14 8,14 t: 1 2 5% 6% 7% Interest table showing the present value of DKK 1,- paid at the end of period t 1% 2% 3% 4% 8% 9% 0,99 0,98 0,97 0,96 0,95 0,94 0,93 0,93 0,92 0,89 0,87 0,86 0,84 0,82 0,79 0,77 0,98 0,97 0,96 0,94 0,92 0,91 0,94 0,92 0,89 0,86 0,92 0,89 0,85 0,84 0,96 0,82 0,79 0,76 0,74 0,71 0,78 0,75 0,71 0,68 0,65 0,75 0,70 0,67 7 0,62 8 0,58 0,95 0,91 0,86 0,82 0,94 0,89 0,84 0,79 0,93 0,87 0,81 0,76 0,71 0,67 0,92 0,85 0,79 0,73 0,68 0,63 9 0,91 0,84 0,77 0,70 0,64 0,59 0,82 0.74 0,68 0,61 0,56 0,51 0,65 0,58 0,53 0,48 0,62 0,56 0,50 0,44 0,40 0,36 0,54 0,50 10 0,91 0,42 0,46 0,43 0.39 11 0,90 0,80 0,72 12 0,89 0,79 0,70 13 0,88 0,77 0.68 0,60 0,53 0,47 0,41 0,37 0,33 14 0,87 0,76 0,66 0,58 0,51 0,44 0,39 0,34 0,30 15 0,86 0.74 0,64 0,56 0.48 0.42 0,36 0,32 0,27 t: 1 2 3 4 5 6 0,63 0,60 0,56 0,58 0,54 0,55 0,51 0,48 0,47 0,43 0,42 0,50 0,46 15% that is: (1+r) 10% 11% 12% 13% 14% 15% 0,91 0,90 0,89 0,88 0,88 0,87 0,83 0,81 0,80 0,78 0,77 0,76 0,75 0,73 0,71 0,69 0,67 0,68 0,66 0,64 0,61 0,59 0,62 0,59 0,53 0,66 0.57 0,57 0,54 0,52 0,50 0,51 0,46 0,43 0,45 0,40 0,38 0,40 0,38 0,35 0.33 0,39 0,36 0,33 0,31 0,28 0,39 0,35 0,32 0,29 0,27 0.25 0,29 0,26 0,24 0,21 0,26 0,23 0,21 0,19 0,35 0,32 0,32 0,29 0,29 0,26 0,23 0,20 0,18 0,16 0,26 0,23 0,20 0,18 0,16 0,14 0,24 0.21 0.18 0.16 0.14 0.12 0,48 0,43 1,15 1,32 1,52
Expert Answer:
Answer rating: 100% (QA)
31Year 0 2200000 Year 1 200000 Year 2 200000 Year 3 200000 Year 4 100000 Year 5 100000 Year 6 100000 NPV 1700000 32 From the information given it seem... View the full answer
Related Book For
Quantitative Investment Analysis
ISBN: 978-1119104223
3rd edition
Authors: Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, David E. Runkle
Posted Date:
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