Question
In: Economics
An auto-part manufacturing company is considering the purchase of an industrial robot to do spot welding,...
An auto-part manufacturing company is considering the purchase of an industrial robot to do spot welding, which is currently done by skilled labor. The initial cost of the robot is $250,000, and the annual labor savings are projected to be $125,000. If purchased, the robot will be depreciated under MACRS as a seven-year recovery property. This robot will be used for five years after which the firm expects to sell it for $50,000. The company’s marginal tax rate is 25% over the project period.
Determine the net after-tax cash flows for each period over the project life. Assume MARR=15%.
Solutions
Expert Solution
Solution :-
Working Notes :-
Machine Cost = $250,000
Total Dep charged in 5 years = $194,225
Book Value after 5 years = $250,000 - $194,225 = $55,775
Selling Price = $50,000
Loss on Sale of Machine = $55,775 - $50,000 = $5,775
Tax Saving in Loss on Sale of Machine = $5,775 * 25% = $1,443.75
Net Cash flow of after tax Salvage Value = ( $50,000 + $1,443.75 ) = $51,443.75
If there is any doubt please ask in comments
Rahul Sunny answered 6 months agoRelated Solutions
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