The following contains cost and benefit information for two different alternatives for a w capital investment in computerized process technologies to control the process at a manufacturing plant (this is a tremendous upgrade from the current process).
|
ITEM
|
CMM-PLC Option
|
FMS-Integrated Option
|
|
Initial Investment
|
$ 15,000,000
|
$ 18,000,000
|
|
Annual O&M Costs
|
|
|
|
Annual Labor Costs
|
500,000
|
520,000
|
|
Annual Material Costs
|
498,000
|
450,000
|
|
Annual Overhead Costs
|
1,500,000
|
1,600,000
|
|
Annual Tooling Costs
|
225,000
|
230,000
|
|
Annual Income Taxes
|
950,000
|
975,000
|
|
Net Annual Benefits (revenue increase & maintenance savings)
|
$ 6,500,000
|
$ 7,000,000
|
|
Net Salvage Value
|
$ 500,000
|
$ 750,000
|
|
|
|
|
Use internal rate of return (IRR) and the appropriate incremental analysis to determine the best alternative. Use 8% as the minimum attractive rate of return (MARR) and assume an 8 YEAR useful life for both projects.