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 $1,340,000 and will have a salvage value of $170,000 after 8 years. Its use 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 after-tax MARR is 10%, and inflation is 3.4%. a. Determine the actual after-tax cash flows for each year. ATCFO = $ 1,340,000 ATCF = $ 1,340,000 ATCF2 = $ 1,340,000 ATCF3 = $ 1,340,000 ATCF4 = $ 1,340,000 ATCF5 = $ 1,340,000 ATCF = $ 1,340,000 ATCF7 = $ 1,340,000 ATCF8 = $ 1,340,000 b. Determine the PW of the after-tax cash flows. PWST = $ 6.212.386 c. Determine the AW of the after-tax cash flows. AWST = $ 5,034,754

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 $1,340,000 and will have a salvage value of $170,000 after 8 years. Its use 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 after-tax MARR is 10%, and inflation is 3.4%. a. Determine the actual after-tax cash flows for each year. ATCFO = $ 1,340,000 ATCF = $ 1,340,000 ATCF2 = $ 1,340,000 ATCF3 = $ 1,340,000 ATCF4 = $ 1,340,000 ATCF5 = $ 1,340,000 ATCF = $ 1,340,000 ATCF7 = $ 1,340,000 ATCF8 = $ 1,340,000 b. Determine the PW of the after-tax cash flows. PWST = $ 6.212.386 c. Determine the AW of the after-tax cash flows. AWST = $ 5,034,754

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

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 $1,340,000 and will have a salvage value of $170,000 after 8 years. Its
use 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 after-tax MARR is 10%,
and inflation is 3.4%.
a. Determine the actual after-tax cash flows for each year.
ATCFO = $
1,340,000
ATCF1= $
1,340,000
ATCF2 = $
1,340,000
ATCF3 = $
1,340,000
ATCF4 = $
1,340,000
ATCF5 = $
1,340,000
ATCF6 = $
1,340,000
ATCF7 = $
1,340,000
ATCF8 = $
1,340,000
b. Determine the PW of the after-tax cash flows.
PWST = $
6,212,386
c. Determine the AW of the after-tax cash flows.
AWST = $
5,034,754
d. Determine the FW of the after-tax cash flows.
FWST = $
9.129,507
e. Determine the combined IRR of the after-tax cash flows.
IRR =
16
%
f. Determine the combined ERR of the after-tax cash flows.

ATCF1 = $
1,340,000
ATCF2 = $
1,340,000
ATCF3 = $
1,340,000
ATCF4 = $
1,340,000
ATCF5 = $
1,340,000
ATCF6 = $
1,340,000
ATCF7 = $
1,340,000
ATCF8 = $
1,340,000
b. Determine the PW of the after-tax cash flows.
PWST = $
6,212,386
c. Determine the AW of the after-tax cash flows.
AWST = $
5,034,754
d. Determine the FW of the after-tax cash flows.
FWST = $
9,129,507
e. Determine the combined IRR of the after-tax cash flows.
IRR =
16
f. Determine the combined ERR of the after-tax cash flows.
ERR =
%
g. Determine the real IRR of the after-tax cash flows.
IRR, =
h. Determine the real ERR of the after-tax cash flows.
ERR, =

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