Question

Marginal​ cost-benefit analysis and the goal of the firm Ken​ Allen, capital budgeting analyst for Bally​ Gears, Inc., has been asked to evaluate a proposal. The manager of the automotive division believes that replacing the robotics used on the heavy truck gear line will produce total benefits of ​$507 comma 000 ​(in today's​ dollars) over the next 5 years. The existing robotics would produce benefits of ​$376 comma 000 ​(also in​ today's dollars) over that same time period. An initial cash investment of $ 202 comma 800 would be required to install the new equipment. The manager estimates that the existing robotics can be sold for $ 63 comma 000. Show how Ken will apply marginal​ cost-benefit analysis techniques to determine the​ following: a. The marginal benefits of the proposed new robotics. b. The marginal cost of the proposed new robotics. c. The net benefit of the proposed new robotics. d. What should Ken recommend that the company​ do? Why? e. What factors besides the costs and benefits should be considered before the final decision is​ made?

Answer 1

replacing the robotics will provide a differential income for 8,800 dollars.

Step-by-step explanation:

507,000 (in today dollars over the next 5 years)

this will be the present value fo the cash inflow

the cash investment will be for 202,800

New Old Differential

purchase (202,800) 202,800

sale 63,000 (63,000)

benefit 507,000 376,000 (131,000)

Total 367,200 376,000 8,800