The managerial finance function and economic value added (EVA). 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 analysis techniques to determine the following:
- The marginal (added) benefits of the proposal new robotics.
- The marginal (added) cost of the proposed new robotics.
- The net benefit of the proposed new robotics.
- What should Ken Allen recommend that the company do? Why?
- What factors besides the costs and benefits should be considered before the final decision is made?