A company is considering replacing an unsafe manual operation with a robot. The robot purchase and installation cost is $170,000 and annual operating expense is $15,000. The manual system has annual operating expenses of $65,000. Equipment used with the manual system could be sold at a salvage value of $30,000.
a. What is the rate of return for the robotics system?
b. What is the payback for the robotics system.?
c. It is hard to determine the dollar value in terms of safety improvement. If the required rate of return for the organization is 40%, what is the implied annual value of the safety if the company implements the robot?