Question

An industrial engineer proposed the purchase of an RFID Fixed-Asset Tracking System for the company's warehouse and weave rooms. The engineer felt that the purchase would provide a better system of locating cartons in the warehouse by recording the locations of the cartons and storing the data in the computer. The estimated investment, annual operating and maintenance costs, and expected annual savings are as follows:

-Cost of equipment and installation: $85,500

-Project life: 6 years

-Expected salvage: $6,000

-Investment in working capital (fully recoverable at the end of the project life): $15,000

-Expected annual savings on labor and materials: $65,800

-Expected annual expenses: $9,150

-Depreciation method: five-year MACRS

The firm's marginal tax rate is 35%.

( Determine the net after-tax cash flow over the projects life )

( Compute the IRR for this investment )

( At MARR = 18% is the project acceptable? )

To be done in excel with formulas please

Answer 1

Below is the image showing calculation of IRR and  net after-tax cash flow over the projects life :

If MARR is 18% the project is acceptable as IRR is greater than cost of Capital.