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The following contains cost and benefit information for two different alternatives for a w capital investment in computerized process technologies to control the process at a manufacturing plant (this is a tremendous upgrade from the current process).
ITEM
CMM-PLC Option
FMS-Integrated Option
Initial Investment
$ 15,000,000
$ 18,000,000
Annual O&M Costs
Annual Labor Costs
500,000
520,000
Annual Material Costs
498,000
450,000
Annual Overhead Costs
1,500,000
1,600,000
Annual Tooling Costs
225,000
230,000
Annual Income Taxes
950,000
975,000
Net Annual Benefits (revenue increase & maintenance savings)
$ 6,500,000
$ 7,000,000
Net Salvage Value
$ 500,000
$ 750,000
Use internal rate of return (IRR) and the appropriate incremental analysis to determine the best alternative. Use 8% as the minimum attractive rate of return (MARR) and assume an 8 YEAR useful life for both projects.
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