An industrial engineer proposed the purchase of rfid, Ask an Expert

Economics

An industrial engineer proposed the purchase of RFID Fixed-Asset Tracking System for the company’s warehouse and weave rooms. The engineer felt that the purchase would provide a better system of locating cartons in the warehouse by recording the locations of the cartons and storing the data in the computer. The estimated investment, annual operating and maintenance costs, and expected annual savings are as follows:

Cost of equipment and installation: $115,500

Project life: 6 years

Expected salvage: $10,000

Investment in working capital (fully recoverable at the end of the project life): $15,000

Expected annual savings on labor and materials: $75,200

Expected annual expenses: $9,300

Depreciation method: five-year MACRS

As part of this project, the firm will take a loan of $40,000 to be repaid in three equal annual payments at 10% interest. The firm’s marginal tax rate is 35%.

a) Determine the net after-tax cash flows over the project life.

b) Compute the IRR for this investment.

c) At MARR = 15%, is the project acceptable?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91835076

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