(Answered) The wessels corporation is considering installing a new

Accounting

The Wessels Corporation is considering installing a new conveyor for materials handling in a warehouse. The conveyor will have an initial cost of $75,000 and an installation cost of $5,000. Expected benefits of the conveyor are: (a)Annual labor cost will be reduced by $16,500, and (b)breakage and other damages from handling will be reduced by $400 per month. Some of the firm's costs are expected to increase as follows: (a)Electricity cost will rise by $100 per month, and (b)annual repair and maintenance of the conveyor will amount to $900. Assume that the firm uses the MACRS rules for depreciation in the five-year property class. No salvage value will be recognized for tax purposes. The conveyor has an expected useful life of eight years and a projected salvage value of $5,000. The tax rate is 40 percent.

1. Estimate future cash inflows for the proposed project.

2. Determine the project's NPV at 10 percent. Should the firm buy the conveyor?

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