Business at your design engineering firm has been brisk. To keep up with the increasing workload, you are considering the purchase of a new state-of-the-art CAD/CAM system costing $550,000, which would provide 4,500 hours of productive time per year. Your firm puts a lot of effort into drawing new product designs. At present, this is all done by design engineers on an old CAD/CAM system installed five years ago. If you purchase the system, 40% of the productive time will be devoted to drawing (CAD) and the remainder to CAM. While drawing, the system is expected to out-produce the old CAD/CAM system by a factor of 2.1. You estimate that the additional annual out-of-pocket cost of maintaining the new CAD/CAM system will be $155,000, including any tax effects. The expected useful life of the system is eight years, after which the equipment will have no residual value. As an alternative, you could hire more design engineers. Each normally works 1,800 hours per year, and 50% of this time is productive. The total cost for a design engineer is $50 per hour. There are four design engineers. Identify the net cash flows (benefits and costs) associated with the drawing activities if the CAD/CAM system is purchased instead of hiring more design engineers In year 0, the net cash flow associated with the drawing activities if the CAD/CAM system is purchased instead of hiring more design engineers will be $ (Round to the nearest dollar)
Business at your design engineering firm has been brisk. To keep up with the increasing workload, you are considering the purchase of a new state-of-the-art CAD/CAM system costing $550,000, which would provide 4,500 hours of productive time per year. Your firm puts a lot of effort into drawing new product designs. At present, this is all done by design engineers on an old CAD/CAM system installed five years ago. If you purchase the system, 40% of the productive time will be devoted to drawing (CAD) and the remainder to CAM. While drawing, the system is expected to out-produce the old CAD/CAM system by a factor of 2.1. You estimate that the additional annual out-of-pocket cost of maintaining the new CAD/CAM system will be $155,000, including any tax effects. The expected useful life of the system is eight years, after which the equipment will have no residual value. As an alternative, you could hire more design engineers. Each normally works 1,800 hours per year, and 50% of this time is productive. The total cost for a design engineer is $50 per hour. There are four design engineers. Identify the net cash flows (benefits and costs) associated with the drawing activities if the CAD/CAM system is purchased instead of hiring more design engineers In year 0, the net cash flow associated with the drawing activities if the CAD/CAM system is purchased instead of hiring more design engineers will be $ (Round to the nearest dollar)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Business at your design engineering firm has been brisk. To keep up with the increasing workload, you are considering
the purchase of a new state-of-the-art CAD/CAM system costing $550,000, which would provide 4,500 hours of
productive time per year. Your firm puts a lot of effort into drawing new product designs. At present, this is all done by
design engineers on an old CAD/CAM system installed five years ago. If you purchase the system, 40% of the
productive time will be devoted to drawing (CAD) and the remainder to CAM. While drawing, the system is expected to
out-produce the old CAD/CAM system by a factor of 2.1. You estimate that the additional annual out-of-pocket cost of
maintaining the new CAD/CAM system will be $155,000, including any tax effects. The expected useful life of the
system is eight years, after which the equipment will have no residual value. As an alternative, you could hire more
design engineers. Each normally works 1,800 hours per year, and 50% of this time is productive. The total cost for a
design engineer is $50 per hour. There are four design engineers. Identify the net cash flows (benefits and costs)
associated with the drawing activities if the CAD/CAM system is purchased instead of hiring more design engineers
In year 0, the net cash flow associated with the drawing activities if the CAD/CAM system is purchased instead of hiring
more design engineers will be $ (Round to the nearest dollar)
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