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(1) The following table summarizes information which are associated with three new 3D Printers
being considered for use in a manufacturing plant. Note that M&O stands for Maintenance &
Operation Cost.
The company's interest rate (MARR) is 12%. Which 3D Printer should the company choose?
Use Annual Cash Flow Analysis.
Solution
NOTES:
(1) M&O is an annual cost.
(2) M&O Gradient: The M&O gradient is 0 at the end of year 1 & increase by the value of
gradient every year. For example, for Printer 1, M&O = $78,000 for year-1. Then, M&O for
year-2 = $78,000 + $15,000 = $93,000. M&O for year-3 = $93,000 + $15,000 = $108,000, and
so on.
(3) Depreciation being a non-cash expense, would be excluded from the annual cash flow
considerations.
Company will choose that printer for which the NPV (Sum of present values of all cash inflows
& outflows) is highest.
The calculations & results are as follows.
From above results, we see that NPV of the 1st Printer is highest, at $619,248. So the company
will choose printer 1.Printer 1YearInvestmentAnnual BenefitAnnual M&OSalvage ValueNet
Annual Cash InflowDiscount Factor @12%Discounted Cash Flow (Present Value)0-27,80,000-
27,80,0001.0000-
27,80,00016,70,00078,0005,92,0000.89295,28,57126,70,00093,0005,77,0000.79724,59,98136,7
0,0001,08,0005,62,0000.71184,00,02046,70,0001,23,0005,47,0000.63553,47,62856,70,0001,38,
0005,32,0000.56743,01,87166,70,0001,53,0005,17,0000.50662,61,92876,70,0001,68,0005,02,0
000.45232,27,07986,70,0001,83,0004,87,0000.40391,96,69196,70,0001,98,0004,72,0000.36061
,70,208106,70,0002,13,0004,57,0000.32201,47,142116,70,0002,28,0004,42,0000.28751,27,064
126,70,0002,43,0004,27,0000.25671,09,600136,70,0002,58,0004,12,0000.229294,420131,18,00
01,18,0000.229227,043NPV6,19,248Printer 2YearInvestmentAnnual BenefitAnnual
M&OSalvage ValueNet Annual Cash InflowDiscount Factor @12%Discounted Cash Flow
(Present Value)0-26,30,000-26,30,0001.0000-
26,30,00016,50,00071,0005,79,0000.89295,16,96426,50,00083,5005,66,5000.79724,51,61036,5
0,00096,0005,54,0000.71183,94,32646,50,0001,08,5005,41,5000.63553,44,13356,50,0001,21,0
005,29,0000.56743,00,16966,50,0001,33,5005,16,5000.50662,61,67576,50,0001,46,0005,04,00
00.45232,27,98486,50,0001,58,5004,91,5000.40391,98,50996,50,0001,71,0004,79,0000.36061,
72,732106,50,0001,83,5004,66,5000.32201,50,201116,50,0001,96,0004,54,0000.28751,30,5141
197,00097,0000.287527,885NPV5,46,702Printer 3YearInvestmentAnnual BenefitAnnual
M&OSalvage ValueNet Annual Cash InflowDiscount Factor @12%Discounted Cash Flow
(Present Value)0-23,00,000-23,00,0001.0000-
23,00,00015,80,00065,0005,15,0000.89294,59,82125,80,00076,0005,04,0000.79724,01,78635,8
0,00087,0004,93,0000.71183,50,90845,80,00098,0004,82,0000.63553,06,32055,80,0001,09,000
4,71,0000.56742,67,25865,80,0001,20,0004,60,0000.50662,33,05075,80,0001,31,0004,49,0000.
45232,03,10585,80,0001,42,0004,38,0000.40391,76,90195,80,0001,53,0004,27,0000.36061,53,
980982,00082,0000.360629,570NPV2,82,699

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(1) The following table summarizes information which are associated .pdf

  • 1. (1) The following table summarizes information which are associated with three new 3D Printers being considered for use in a manufacturing plant. Note that M&O stands for Maintenance & Operation Cost. The company's interest rate (MARR) is 12%. Which 3D Printer should the company choose? Use Annual Cash Flow Analysis. Solution NOTES: (1) M&O is an annual cost. (2) M&O Gradient: The M&O gradient is 0 at the end of year 1 & increase by the value of gradient every year. For example, for Printer 1, M&O = $78,000 for year-1. Then, M&O for year-2 = $78,000 + $15,000 = $93,000. M&O for year-3 = $93,000 + $15,000 = $108,000, and so on. (3) Depreciation being a non-cash expense, would be excluded from the annual cash flow considerations. Company will choose that printer for which the NPV (Sum of present values of all cash inflows & outflows) is highest. The calculations & results are as follows. From above results, we see that NPV of the 1st Printer is highest, at $619,248. So the company will choose printer 1.Printer 1YearInvestmentAnnual BenefitAnnual M&OSalvage ValueNet Annual Cash InflowDiscount Factor @12%Discounted Cash Flow (Present Value)0-27,80,000- 27,80,0001.0000- 27,80,00016,70,00078,0005,92,0000.89295,28,57126,70,00093,0005,77,0000.79724,59,98136,7 0,0001,08,0005,62,0000.71184,00,02046,70,0001,23,0005,47,0000.63553,47,62856,70,0001,38, 0005,32,0000.56743,01,87166,70,0001,53,0005,17,0000.50662,61,92876,70,0001,68,0005,02,0 000.45232,27,07986,70,0001,83,0004,87,0000.40391,96,69196,70,0001,98,0004,72,0000.36061 ,70,208106,70,0002,13,0004,57,0000.32201,47,142116,70,0002,28,0004,42,0000.28751,27,064 126,70,0002,43,0004,27,0000.25671,09,600136,70,0002,58,0004,12,0000.229294,420131,18,00 01,18,0000.229227,043NPV6,19,248Printer 2YearInvestmentAnnual BenefitAnnual M&OSalvage ValueNet Annual Cash InflowDiscount Factor @12%Discounted Cash Flow (Present Value)0-26,30,000-26,30,0001.0000- 26,30,00016,50,00071,0005,79,0000.89295,16,96426,50,00083,5005,66,5000.79724,51,61036,5 0,00096,0005,54,0000.71183,94,32646,50,0001,08,5005,41,5000.63553,44,13356,50,0001,21,0 005,29,0000.56743,00,16966,50,0001,33,5005,16,5000.50662,61,67576,50,0001,46,0005,04,00
  • 2. 00.45232,27,98486,50,0001,58,5004,91,5000.40391,98,50996,50,0001,71,0004,79,0000.36061, 72,732106,50,0001,83,5004,66,5000.32201,50,201116,50,0001,96,0004,54,0000.28751,30,5141 197,00097,0000.287527,885NPV5,46,702Printer 3YearInvestmentAnnual BenefitAnnual M&OSalvage ValueNet Annual Cash InflowDiscount Factor @12%Discounted Cash Flow (Present Value)0-23,00,000-23,00,0001.0000- 23,00,00015,80,00065,0005,15,0000.89294,59,82125,80,00076,0005,04,0000.79724,01,78635,8 0,00087,0004,93,0000.71183,50,90845,80,00098,0004,82,0000.63553,06,32055,80,0001,09,000 4,71,0000.56742,67,25865,80,0001,20,0004,60,0000.50662,33,05075,80,0001,31,0004,49,0000. 45232,03,10585,80,0001,42,0004,38,0000.40391,76,90195,80,0001,53,0004,27,0000.36061,53, 980982,00082,0000.360629,570NPV2,82,699