Benjamin Corporation is considering the various benefits that may result from the shortening of its production cycle by changing from the company's present manufacturing system to a computer integrated manufacturing (CIM) system. The proposed system can provide productive time equivalence close to the 20,000 hours available annually with the company's present system. The present system costs $20 per hour more to operate than the proposed CIM system. The company expects to operate the system at full capacity. The annual out-of-pocket costs of maintaining the proposed CIM system are $200,000 more than the company's present system. The proposed CIM system will require an initial investment of $600,000. The system is expected to have a useful life of 6 years with no expected salvage value. The company is in the 40% tax rate bracket.
Required:
Compute the relevant annual after-tax cash flows expected from the CIM project. (Assume the equipment is 5-year class MACRS property, and use the rates provided in Exhibit 22-4 to compute tax depreciation.)