Costs associated with the manufacture of miniature high-sensitivity piezoresistive pressure transducers is, $73,000 per year. A clever industrial engineer found that by spending $16,000 now to reconfigure the production line and reprogram two of the robotic arms, the cost will go down to $58,000 next year and $52,000 in years 2 through 5. Using an interest rate of 10% per year, determine the present worth of the savings due to the reconfiguration. (Hint: Include the reconfiguration cost.)
What will be an ideal response?
Present worth before = 73,000(P/A,10%,5)
= 73,000(3.7908)
= $276,728
Present worth after = 16,000 + 58,000(P/F,10%,1) + 52,000(P/A,10%,4)(P/F,10%,1)
= 16,000 + 58,000(0.9091) + 52,000(3.1699)(0.9091)
= $218,579
Present worth of savings = 276,728 – 218,579 = $58,149
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