Determine if the robot is justifiable investment

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Reference no: EM132051276

An assembly operation at a software company currently requires $104,000 per year in labor costs. A robot can be purchased and installed to automate this operation and the robot will cost $204,000 with no MV at the end of its 10-year life. The robot, if acquired, will be depreciated using SL depreciation to a terminal BV of zero after 10 years. Maintenance and operation expenses of the robot are estimated to be $68,000 per year. The company has an effective income tax rate of 35%. Invested capital must earn at least 99% after income taxes are taken into account.

a) Use the IRR method to determine if the robot is a justifiable investment.

b) If MACRS (seven-year recovery period) had been used in Part? (a), would the? after-tax IRR be lower or higher than your answer to Part (a)?

Reference no: EM132051276

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