Today Production Company Is Considering the Purchase of a Flexible

question 74

Essay

Today Production Company is considering the purchase of a flexible manufacturing system.The cash benefits/savings associated with the system are as follows:
The system will cost $1,500,000 and will last 10 years.The company's cost of capital is 10%.
Required:
$$\begin{array} { l r } \text { Decreased waste } & \$ 150,000 \\\text { Increased quality } & 200,000 \\\text { Decrease in operating costs } & 125,000 \\\text { Increase in on-time deliveries } & 25,000\end{array}$$ A. What is the payback period for the flexible manufacturing system?
B. What is the NPV for the flexible manufacturing system?

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Definitions:

Invention

The creation of a new product, process, or method that has not previously existed.

Creative Destruction

The process through which new innovations lead to the demise of older technologies, promoting progress and economic growth.

Diffusion

The process by which an innovation is communicated through certain channels over time among the members of a social system.

R&D

Short for Research and Development, involving investigative activities a business conducts to improve existing products and procedures or to lead to the development of new products and procedures.