Alex MacDonald
Corporate Finance
11/10/08
Part I
A) Robotic System Payback Period = 2.96 years
Manual System Payback Period = 3.6 years
B) NPV Robotic System = 28,397.99
NPV Manual System = 21,087.36
C) I would recommend my company to purchase the Robotic System because you can pay off the total cost of the machine in 2.96 years which is less time then they need to pay of the cost of the manual system if they were to choose that and also it has a higher Net present value than the Manual System.
D) No because the Robotic system will still have a higher Net Present Value then the Manual System at the end of the 6 year period. Also the manual System is more labor intensive than the robotic system adding in extra labor costs.
E) Intangible Factors that would lead to choose one project over another would include:
- Which system is easiest for employees to use and learn
- Would choosing the robotic system cause me to layoff a large amount of employees
Part II
A) Payback Period = 5.66 years
B) Internal Rate of Return = 11.9%
C) If the payback period normally only takes 5 years, based only on this information, I would not recommend this project to the company because it would take greater than 5 years for us to payback the initial cost.
D) Due to the IRR being greater than minimum rate of return which is 10% then I would recommend my company to pursue this project because the IRR is equal to 11.9%