Income statement and cash flow statements for project

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Reference no: EM132049047

Your company is considering investing in a process control system to regular and monitor an important automated production process. The control system, which is classified as a 3-year MACRS asset, will cost $85,00 to purchase, and will require an additional investment in programming ($10,050) to customize the software to the company’s needs, and $1200 in labor to install and validate the system before releasing it for production. Once installed, the system is expected to save your company $24,500 per year, for at least the next seven years, in reduced process scrap and downtime. Annually, it will cost $2,600 to operate and maintain the control system. At the end of the fifth year, you anticipate a major overhaul of the production line, making the control system obsolete. However, you anticipate selling the control system (at the end of year 5) to a smaller facility for 10% of the initial cost basis. (a) Find the net cash flows for each year of this project by constructing the income statement and cash flow statements for the project. Note: You must show all unique calculations. For repetitive calculations – i.e. things you will calculate for each year of the project in the exact same way – you only need to show one representative calculation. (b) Use the net present worth approach to determine if your company should (or should not) invest in this control system. Assume that your company’s MARR is 12%.

Reference no: EM132049047

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