Carded Graphics, Llc Case Study Analysis
To this end, upgrading the carded machine will solve future savings that the carder graphics can bring, including variable cost savings (excluding labor), which is the results of the reduction in savings of other savings that are not included in this case. Furthermore, in this case, electricity and wages can be saved, as the new machine might require less maintenance and less labor.
Replacement towards the new machine will not only save for the company from a selection of graphics, but will also add additional costs to the business. These costs also include additional indirect costs, as the new machine takes up more space than the old paper cutter. Other costs are not mentioned here,which might be the cost of manual training to operate the machine and other configuration costs related to the changes in the system of the new equipment. On the other hand, the new cutter machine is priced as 700,000 dollars, in the market. Carded Graphics has predicted the resale value of this new machine, which will be 120,000 dollars at theend of the ninth years.
Calculation of Discount Rate and NPV:
Murry Pitts decided to use financial data from a comparable business, an appropriate discount factor as well as a traditional net present value method to evaluate an investment in equipment. The 5.7 percent discount rate is calculated based on data from the comparable International Packaging company. The results of this calculations are shown in Exhibit 1 of the document.
The net present value is calculated by deducting the cost of saving new equipment, and all costs must be incremental, which means that it is directly related to the new equipment. For this calculation, we assume a tax rate of 30 percent and a savings increase by 3 percent. The net present value of the new printer is estimated to be 22,957,542dollars. The calculated value is shown in Exhibit 2 of the document.....................................
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