1. A computerized machining center has been proposed for a tool-manufacturing company. The new system will cost $125,000 installed, will make 1000 parts per year which sell for $100/each, and will require $20,000 in annual labor, $12,000 in annual material expense, and another $8,000 (overhead) in annual power and utility expenses. The new system will be depreciated over 10 years according to straight line rules with no anticipated salvage value. The lifetime of the project is 10 years, at which the time equipment will be sold for $70,000. The tax rate is 40% and the minimal acceptable rate of return (MARR) is 15%. Working capital is require as below, it will be returned at the end of the project.

2 month supply of finished goods

1 month supply of raw materials

A: Using your excel spreadsheet please determine:

1. Labor cost per unit, material cost per unit, overhead per unit

2. Units produced per month and Working capital required at start of project

3. Project IRR

4. NPV or NPW

B: Manually calculate the NPV using the single and equal payment series equations in the front of the book.