Large Mart, a very large retail corporation, currently uses manual labor to process cases of retail goods at one of the corporation’s distribution centers. Large Mart is considering a project which would replace the manual labor with robots. Your first task as a project manager is to evaluate the potential project and determine if the project is feasible. Currently, 120,000,000 cases are being processed annually, at a rate of 650 cases per hour. The corporation expects the number of cases processed annually to increase by 5% for each of the next 5 years. Labor costs are currently $25.00 hour, and will increase by 2.5% each year, also for the next 5 years. Large Mart can purchase robots which are capable of processing the cases for $375,000, per robot. However, to take advantage of this price, all robots must be purchased as part of the initial set-up. The robots can process cases at a rate of 450 cases per hour and be utilized 24 hours per day, 365 days per year. There is an annual maintenance and licensing fee of $850,000 for the robots, regardless of the number of robots utilized. 

If Large Mart requires an annual return of 8% on investments, does the Net Present Value of the total annual cost savings from switching to robots offset the initial investment in the robots? With that requirement, is the project feasible? Disregard taxes, depreciation, and amortization expenses for this analysis. Instruction question

What are the forecasted number of cases processed in years 1, 2, 3, 4, and 5?

• What are the expected labor costs in years 1, 2, 3, 4, and 5?

• How many robots are needed to process the forecasted cases in year 5?

• How much are the net savings if robots are used and completely replace the labor costs in years 1, 2, 3, 4 and 5?

• If all robots must be purchased in the initial set-up, what is the cost to purchase the number of robots that will be needed for this project? 

• Use the initial outlay and annual cost savings to calculate the NPV of the Project at 8% Required Return?

• Does the Net Present Value of the total annual cost savings from switching to robots offset the initial investment in the robots? (YES/NO)

• With that requirement, is the project feasible? (YES/NO)

Answer rating: 100% (QA)

Here are the calculations 1 Forecasted number of cases processed in years Year 1 120000000 105 12600... View the full answer