A make or buy decision is being considered for a part that has been purchased from suppliers

Question:

A make or buy decision is being considered for a part that has been purchased from suppliers in the past. The savings are estimated to be $15,000 per year. The equipment to produce the part would cost $55,000 and have a life of seven years and no at that time. The organization wants to earn 10% after tax on its investments. Determine the operating cash flow of the investment and if it meets the desired after-tax ROI if straight-line depreciation is used and the effective tax rate is 50%.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...