Hani Talal, capital budgeting analyst for Bally Gears, Inc., has been asked to evaluate a proposal. The manager of the automotive division believes that replacing the robotics used on the heavy truck gear line will produce total benefits of US$560,000 (in today s dollars) over the next 5 years. The existing robotics would produce benefits of US$400,000 (also in today s dollars) over that same time period. An initial cash investment of US$220,000 would be required to install the new equipment. The manager estimates that the existing robotics can be sold for US$70,000.

 Show how Hani will apply marginal cost-benefit analysis techniques to determine the following: 

a. The marginal (added) benefits of the proposed new robotics. 

b. The marginal (added) cost of the proposed new robotics. 

c. The net benefit of the proposed new robotics. 

d. What should Hani Talal recommend that the company do? Why? 

e. What factors besides the costs and benefits should be considered before the final decision is made?

Answer rating: 100% (QA)

aMarginal benefitsNew roboticsexisting robotics 568000... View the full answer