An automobile-manufacturing company is considering purchasing an industrial robot to do spot welding, which is currently done by skilled labor. The initial cost of the robot is $180,000, and the annual labor savings are projected to be $103,753. If purchased, the robot will be depreciated under MACRS as a five-year recovery property. The robot will be used for seven years, at the end of which time, the firm expects to sell it for $58,000. The company's marginal tax rate is 25% over the project period. Assume MARR = 18%. Click the icon to view the MACRS depreciation schedules.

An automobile-manufacturing company is considering purchasing an industrial robot to do spot welding, which is currently done by skilled labor. The initial cost of the robot is $180,000, and the annual labor savings are projected to be $103,753. If purchased, the robot will be depreciated under MACRS as a five-year recovery property. The robot will be used for seven years, at the end of which time, the firm expects to sell it for $58,000. The company's marginal tax rate is 25% over the project period. Assume MARR = 18%. Click the icon to view the MACRS depreciation schedules.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Commercial Hydronics is considering replacing one of its larger control devices. A new unit sells for $27,000 (delivered). An additional $4,000 will be needed to install the device. The new device has an estimated 17-year service life. The estimated salvage value at the end of 17 years will be $2,000. The new control device will be depreciated as a 7-year MACRS asset. The existing control device (original cost = $20,000) has been in use for 11 years, and it has been fully depreciated (that is, its book value equals zero). Its scrap value is estimated to be $2,000. The existing device could be used indefinitely, assuming the firm is willing to pay for its very high maintenance costs. The firm's marginal tax rate is 40 percent. The new control device requires lower maintenance costs and frees up personnel who normally would have to monitor the system. Estimated annual cash savings from the new device will be $10,000. The firm's cost of capital is 12 percent.Evaluate the relative merits…
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Bumps Unlimited, a highway contractor, must decide whether to overhaul a tractor and scraper or replace it. The old equipment was purchased 5 years ago for $130,000; it had a 12-year projected life. If traded for a new tractor and scraper, it can be sold for $60,000. Overhauling the equipment will cost $20,000. If overhauled, O&M cost will be $25,000/year and salvage value will be negligible in 7 years. If replaced, a new tractor and scraper can be purchased for $150,000. O&M costs will be $12,000/year. Salvage value after 7 years will be $35,000. Using a 15% MARR and an annual worth analysis, should the equipment be replaced?
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Purple Haze Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $526,528 is estimated to result in some amount of annual pretax cost savings. The press will have an aftertax salvage value at the end of the project of $86,879. The OCFS of the project during the 4 years are $170,654, $199,481, $175,232 and $169,873, respectively. The press also requires an initial investment in spare parts inventory of $23, 482, along with an additional $1,631 in inventory for each succeeding year of the project. The shop's discount rate is 6 percent. What is the NPV for this project?
A small strip mining cola company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the shell will cost $150,000 and is expected to have a $65,000 salvage value after 6 years. Alternatively, the company can lease a clamshell for $20,000 per year, but the lease payment will have to be made at the beginning of each year. If the clamshell is purchased, it will be leased to other strip-mining companies whenever possible, an activity that is expected to yield revenue of $12,000 per year. If the company’s MARR is 15% per year, should the clamshell be purchased or leased on the basis of future worth analysis. (Enter the FW value of the selected alternative with proper positive or negative sign)

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