Reference no: EM131092385
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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