A company that manufactures high-speed submersible rotary-indexing spindles is considering an upgrade of production equipment to reduce costs over the next 5 years. The company can invest $80,000 now, 1 year from now, or 2 years from now. Depending on when the investment is made, the savings will vary. The saving estimates are $26,000, $31,000, or $37,000 per year if the investment is made now, 1 year from now, or 2 years from now, respectively. The company will only invest if the ROR is at least 20% per year. Using a future worth analysis, determine if the timing of the investment will affect the return requirement and, if so, when the investment should be made. Solve by (a) hand, and (b) spreadsheet.
A company that manufactures high-speed submersible
rotary-indexing spindles is considering
an upgrade of production equipment to reduce
costs over the next 5 years. The company can invest
$80,000 now, 1 year from now, or 2 years
from now. Depending on when the investment is
made, the savings will vary. The saving estimates
are $26,000, $31,000, or $37,000 per year if the
investment is made now, 1 year from now, or 2
years from now, respectively. The company will
only invest if the ROR is at least 20% per year.
Using a future worth analysis, determine if the
timing of the investment will affect the return requirement
and, if so, when the investment should
be made. Solve by (a) hand, and (b) spreadsheet.
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