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 $560,000 (in today’s dollars) over the next 5 years. The existing robotics would produce benefits of $400,000 (also in today’s dollars) over that same time period. An initial cash investment of $220,000 would be required to install the new equipment. The manager estimates that the existing robotics can be sold for $70,000. Show how Ken will apply marginal cost-benefit analysis techniques to determine the following:
1. The marginal (added) benefits of the proposed new robotics is $______________
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 $560,000 (in today’s dollars) over the next 5 years. The existing robotics would produce benefits of $400,000 (also in today’s dollars) over that same time period. An initial cash investment of $220,000 would be required to install the new equipment. The manager estimates that the existing robotics can be sold for $70,000.
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In this section, you will learn how to use marginal cost-benefit analysis techniques to determine the optimal level of production. You can apply these techniques in many different settings and industries, including business and economics classes.
Marginal Cost-Benefit Analysis: A business can make a better offer by using marginal cost-benefit analysis to propose an alternative strategy. This technique involves comparing two strategies using the following criteria:
Marginal benefit analysis could also be used to assess the effects of proposed investments in research and development activities. A company could use marginal benefit analysis to determine whether or not it should invest in research and development activities. It could also use this technique to determine how much money it should spend on its R&D efforts, or whether it should even bother with them at all.
Marginal Cost-Benefit Analysis
Marginal cost-benefit analysis is a technique used to evaluate the effect of proposed investments on company performance. It involves calculating the monetary benefits and costs associated with each additional unit of production or service, then comparing them to each other. By using this approach, managers can make better decisions about which projects will generate high returns for their organizations and which ones will not.
In conclusion, Ken Allen has been asked to evaluate a proposal and should use marginal cost-benefit analysis techniques to determine its effects on company performance.
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