Raytheon wishes to use an automated environmental chamber in the manufacture of electronic components. The chamber is to be used for rigorous reliability testing and burn-in. It is installed for $1.4 million and will have a salvage value of $200,000 after 8 years. Raytheon will borrow $800,000 at 12% to be paid back over 8 years. The environmental chamber will create an opportunity to increase sales by $650,000 per year and will have operating expenses of $250,000 per year. All dollar amounts are expressed in real dollars. Depreciation follows MACRS 5-year property, taxes are 25%, the real aftertax MARR is 10%, and inflation is 4.2%. Determine the actual after-tax cash flows for each year and the PW, FW, AW, IRRc, ERRc, IRRr, and ERRr for each of the four loan payment plans as: a. Plan 1. b. Plan 2. c. Plan 3. d. Plan 4. e. Which is the preferred plan for Raytheon?
Raytheon wishes to use an automated environmental chamber in the manufacture of electronic components. The chamber is to be used for rigorous reliability testing and burn-in. It is installed for $1.4 million and will have a salvage value of $200,000 after 8 years. Raytheon will borrow $800,000 at 12% to be paid back over 8 years. The environmental chamber will create an opportunity to increase sales by $650,000 per year and will have operating expenses of $250,000 per year. All dollar amounts are expressed in real dollars.
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