Seattle Fish Processing Company is considering the installation of an automated product handling system. The initial cost of such a system would be $400,000. This system would generate labor cost savings over its 10 year life as follows:
|
Annual Labor |
|
|
Years |
Cost Savings |
|
1–2 |
$70,000 |
|
3–5 |
85,000 |
|
6–8 |
86,400 |
|
9–10 |
62,000 |
The system will have no salvage at the end of its 10 year life, and the company uses a discount rate of 12 percent. What is the pretax net present value of this potential investment?