Activity: You and your team came up with a plan to automate the very time-consuming process of manual welding by using robotic welders. First, compute how this would increase productivity. Output (sales, in $million) Labor (payroll, in $million) Capital (expenses, in $million) One-time capital investment ($million) Change in Productivity= Year 1 $120 $32 Change in sales from Year 1 to Year 2= Change in labor cost from Year 1 to Year 2 = $45 $10 Productivity Year 1 1.56 Year 2 $160 $26 $45 $-0 Productivity Year 2 2.25 Next, using just the first year benefits (no amortization/depreciation), what is the ROI for this investment? Change in capital cost from Year 1 to Year 2 = Investment required to create this change = ROI = Based on these results, is this project a good idea or not? ROI Tip: The ROI, or Return on Investment, calculation here is already set-up for you. The formula looks at values in the Year 1, Year 2 and Annual Inflation columns. When answering the question if this project is a good idea or not, remember that a value of greater than 1, implies you do make money on your investment (i.e. you have a positive ROI). Productivity Tip: To calculate the "productivity," we need to divide the output, over all of our investment (all labor + capital). Like seen in the formula below! Productivity output capital + labor Change in Productivity Tip: Change in productivity has us look at what (if any) change do we see year over year. As this is a %, we should subtract the next year, from the previous year, then divide that by the previous year. That way we can see the Change in Productivity next year previous year previous year ROI Tip: The ROI is the Return on Investment. Your formula will look at values in the Year 1, Year 2 and Annual Inflation columns. When answering the question if this project is a good idea or not, remember that a value of greater than 1, implies you do make money on your investment (i.e. you have a positive ROI). ROI Formula Tip: ROI = Net Return on Investment Cost of Investment (Net return is the output - labor - capital. Net is the change from Year 1 to Year 2.) (Include only those costs unique to the investment)