Bailey, Inc., is considering buying a new gang punch that would allow it to produce circuit boards more efficiently. The punch has a first cost of $100,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Labor costs would increase $2,000 per year using the gang punch, but raw material costs would decrease $12,000 per year. MARR is 5%/ year. a. What is the discounted payback period for this investment? b. If the maximum attractive DPBP is 3 years, what is the decision rule for judging the worth of this investment? c. Should Bailey buy the gang punch based on DPBP?
Bailey, Inc., is considering buying a new gang punch that would allow it to produce circuit boards more efficiently. The punch has a first cost of $100,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Labor costs would increase $2,000 per year using the gang punch, but raw material costs would decrease $12,000 per year. MARR is 5%/ year. a. What is the discounted payback period for this investment? b. If the maximum attractive DPBP is 3 years, what is the decision rule for judging the worth of this investment? c. Should Bailey buy the gang punch based on DPBP?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
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Bailey, Inc., is considering buying a new gang punch that would allow it to produce circuit boards more efficiently. The punch has a first cost of $100,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Labor costs would increase $2,000 per year using the gang punch, but raw material costs would decrease $12,000 per year. MARR is 5%/ year. a. What is the discounted payback period for this investment? b. If the maximum attractive DPBP is 3 years, what is the decision rule for judging the worth of this investment? c. Should Bailey buy the gang punch based on DPBP?
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