An Increased Number of Companies Are Investing in Advanced Manufacturing

An increased number of companies are investing in advanced manufacturing systems.
Required:
A.Many proposed advanced manufacturing systems have a negative net present value when discounted-cash-flow analysis is used.Explain several causes of this situation.
A.Negative net present values may arise from several factors: the investments are very costly;the hurdle rate may be very high to compensate for project risk;the time horizon may be too short;and a number of benefits associated with the project may have been excluded from the analysis because of related quantification problems.
B.Greater flexibility in the manufacturing process and improvements in product quality are very difficult to quantify.As a result,these items may be excluded from a discounted-cash-flow analysis,decreasing an investment's attractiveness.
B.Two major benefits of advanced systems are greater flexibility in the manufacturing process and improvements in product quality.Explain how these benefits can create problems when performing discounted-cash-flow analysis.