Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations

The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $$205,000.$ The manager believes that the new investment will result in direct labor savings of $$41,000$ per year for $10$ years.

Present Value of an Annuity of $$1$ at Compound Interest

Year $6\%10\%12\%15\%20\%$Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations

The plant manager of Shenzhen Electronics Company is considering the purchase

of new automated assembly equipment. The new equipment will cost $$205,000.$

The manager believes that the new investment will result in direct labor savings of

$$41,000$ per year for $10$ years.

Present Value of an Annuity of $$1$ at Compound

Interest

a$.$ What is the payback period on this project?

years

b$.$ What is the net present value, assuming a $12\%$ rate of return? Use the table

provided above. Round to the nearest whole dollar.

Net present value $,$$

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

$10\mathrm{.}9430\mathrm{.}9090\mathrm{.}8930\mathrm{.}8700\mathrm{.}833$

$21\mathrm{.}8331\mathrm{.}7361\mathrm{.}6901\mathrm{.}6261\mathrm{.}528$

$32\mathrm{.}6732\mathrm{.}4872\mathrm{.}4022\mathrm{.}2832\mathrm{.}106$

$43\mathrm{.}4653\mathrm{.}1703\mathrm{.}0372\mathrm{.}8552\mathrm{.}589$

$54\mathrm{.}2123\mathrm{.}7913\mathrm{.}6053\mathrm{.}3532\mathrm{.}991$

$64\mathrm{.}9174\mathrm{.}3554\mathrm{.}1113\mathrm{.}7853\mathrm{.}326$

$75\mathrm{.}5824\mathrm{.}8684\mathrm{.}5644\mathrm{.}1603\mathrm{.}605$

$86\mathrm{.}2105\mathrm{.}3354\mathrm{.}9684\mathrm{.}4873\mathrm{.}837$

$96\mathrm{.}8025\mathrm{.}7595\mathrm{.}3284\mathrm{.}7724\mathrm{.}031$

$107\mathrm{.}3606\mathrm{.}1455\mathrm{.}6505\mathrm{.}0194\mathrm{.}192$

a$.$ What is the payback period on this project?

fill in the blank $1$ years

b$.$ What is the net present value, assuming a $12\%$ rate of return? Use the table provided above. Round to the nearest whole dollar.

Net present value $fill in the blank $2$

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