An automated handling device in a resin processing plant is being considered to replace 3 manual...

An automated handling device in a resin processing plant is being considered to replace
3 manual material conveyors. Each of the conveyors makes $20,000/year and the
employee benefit costs are 25% of the wages. Annual maintenance costs and property
taxes (paid to the city and county) are together estimated to be 10% of the cost of the
equipment. Using an after-tax analysis determine the maximum that the company
should pay for this equipment. MACRS depreciation is used, and the equipment is a 3-
year MACRS property. The tax-rate (federal and state) is 40%. An after-tax MARR of
10% is used by the company, and the device has a useful equipment life of 4 years with
no salvage value. Annual wages are given as $20,000 per worker

Solutions

Expert Solution

Value of automatic handling device = Sum of present value of cash flows

x = $66,567.17 + 0.1427x

0.8573x = $66,567.17

x = $77,647.47 approx

The maxium that company should pay for the equipment is $77,647.47 approx.

Note: Each of the conveyors makes $20,000/year - assumed to be revenue they make, answer will differ if this is meant to be the net profits. Let me know in case of any confusion.

jeff jeffy answered 1 year ago

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