A manufacturing company decided to buy an automated machine

A manufacturing company decided to buy an automated machine in order to produce a new kind of computer accessories. The designed production capacity of this company is 300,000 units per year.  As the Chief Executive Officer (CEO) of this company, Amanda proposed a machine procurement plan, in which: 

⚫ Investment in machine purchasing is $800,000; 

⚫ Selling price of each unit is $5; 

⚫ Cost of raw material is $2.5 per unit; 

⚫ Packaging cost is $0.5 per unit; 

 Annual labor cost is $200,000; 

⚫ Annual expenses for machine maintenance is $150,000; 

⚫ This machines can be used for 8 years; 

⚫ The salvage value (market value) after 8 years is $25,000.

(1)Calculate the annual Variable Cost and Fixed Cost in Amanda’s proposal. [5 marks]

(2)Calculate the net cash flow in each year (From year 0 to year 8). [10 marks]

(3)When the company determines the minimum attractive rate of return (MARR),
what factors should be considered? [5 marks]

(4)If the MARR of this company is 15% per year. Based on the PW method, should
the machine suggested by Amanda be accepted? [10 marks]

 

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