Please Help me in solving case study exeerc,

STUDY CASE NO.2

ROR ANALYSIS WITH ESTIMATED LIVES THAT VARY

Background

Make-to-Specs is a software system under development by ABC Corporation. It will be able to translate digital versions of three-dimensional computer models, containing a wide variety of part shapes with machined and highly finished (ultra smooth) surfaces. The product of the system is the numerically controlled (NC) machine code for the part' s manufacturing. Additionally, Make-to-Specs will build the code for superfine finishing of surfaces with continuous control of the finishing machines.

Information

There are two alternative computers that can provide the server function for the software interfaces and shared database updates on the manufacturing floor while Make-to- Specs is operating in parallel mode. The server first cost and estimated contribution to annual net cash flow are summarized below.

Server 1 Server2

First cost,$ 100,000 200,000

Net cash flow, $/year 35,000 50,000 year 1 ,plus 5000 per years 2,3 and 4

(gradient)

70,000 maximum for years 5 on, even if the

server is replaced

Life,years 3or4 5 or 8

The life estimates were developed by two different individuals: a design engineer and a manufacturing manager. They have asked that, at this stage of the project, all analyses be performed using both life estimates for each system.

Case Study Exercises

Use spreadsheet analysis to determine the following:

(a) If the MARR = 12%, which server should be selected? Use the PW or AW method to make the selection.

(b) Use incremental ROR analysis to decide between the servers at MARR = 12%.

(c) Use any method of economic analysis to display on the spreadsheet the value of the incremental ROR between server 2 with a life estimate of 5 years and a life estimate of 8 years.