Raytheon wishes to use an automated environmental chamber in the manufacture of electronic components. The chamber is
Question:
Raytheon wishes to use an automated environmental chamber in the manufacture of electronic components. The chamber is to be used for rigorous reliability testing and burn-in. It is installed for \($1.4\) million and will have a salvage value of \($200,000\) after 8 years. Raytheon will borrow \($800,000\) at 12 percent to be paid back over 8 years.
The environmental chamber will create an opportunity to increase sales by \($650,000\) per year and will have operating expenses of \($250,000\) per year. All dollar amounts are expressed in real dollars. Depreciation follows MACRS 5-year property, taxes are 40 percent, the real after-tax MARR is 10 percent, and inflation is 4.2 percent.
Determine the actual after-tax cash flows for each year and the PW, FW, AW, IRRc, ERRc, IRRr, and ERRr for each of the following loan payment plans:
a. Plan 1
b. Plan 2
c. Plan 3
d. Plan 4
e. Which is the preferred plan for Raytheon?
Step by Step Answer:
Principles Of Engineering Economic Analysis
ISBN: 9781118163832
6th Edition
Authors: John A. White, Kenneth E. Case, David B. Pratt