The Balas Manufacturing Company is considering buying an overhead pulley system. The new system has a purchase price of $150.000, an estimated useful life and MACRS class life of five years, and an estimated salvage value of $l0,000. The system is expected to enable the company 10 economize on electric power usage, labor, and repair costs, as well as to reduce the number of defective products made. A total annual savings of $95,000 will be realized if the new pulley system is installed. 1l1e company is in the 35% marginal tax bracket. The initial investment will be financed with 40% equity and 60% debt. The before-tax debt interest rate. which combines both short-term and long-term financing. is 12% with the loan to be repaid in equal annual installments over the project life.(a) Determine the after-tax cash flows.(b) Evaluate this investment project by using an MARR of 20%.(c) Evaluate this investment project on the basis of the IRR criterion.
The Balas Manufacturing Company is considering buying an overhead pulley system. The new system has a purchase price of $150.000, an estimated useful life and MACRS class life of five years, and an estimated salvage value of $l0,000. The system is expected to enable the company 10 economize on electric power usage, labor, and repair costs, as well as to reduce the number of defective products made. A total annual savings of $95,000 will be realized if the new pulley system is installed. 1l1e company is in the 35% marginal tax bracket. The initial investment will be financed with 40% equity and 60% debt. The before-tax debt interest rate. which combines both short-term and long-term financing. is 12% with the loan to be repaid in equal annual installments over the project life.
(a) Determine the after-tax cash flows.
(b) Evaluate this investment project by using an MARR of 20%.
(c) Evaluate this investment project on the basis of the
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