4. Shelly's Productions is considering automating part of it's manufacturing operations by purchasing a computerized ins

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4 Shelly S Productions Is Considering Automating Part Of It S Manufacturing Operations By Purchasing A Computerized Ins 1 (35.73 KiB) Viewed 39 times

4. Shelly's Productions is considering automating part of it's manufacturing operations by purchasing a computerized inspection device. This device would replace a manual inspection system and would save annual labor costs of $47,500. To evaluate the feasibility of this new system, the process engineer has gathered this additional information. Initial cost of the computer and software Expected salvage value in 4 years $140,000 $0 Newl annual operating costs of the new system $8,500 Expected life of the system 4 years The company has determined that it will invest in the new device if its pre-tax payback period is less than 3 years. Required: Draw a cash flow diagram (timeline) of the relevant cash flows. Compute the payback period for this device. Does the payback meet the company's criterion? Explain.