Morgantown Mining Company is considering a new mining method at its Blacksville mine. The method, called long wall mining, is carried out by a robot. Coal is removed by the robot-not by tunneling like a worm through an apple, which leaves more of the target coal than is removed-but rather by methodically shuttling back and forth across the width of the deposit and devouring nearly everything. The method can extract about 75% of the available coal, compared with 50% for conventional mining, which is done largely with machines that dig tunnels. Moreover, the coal can be recovered far more inexpensively. Currently, at Blacksville alone, the company mines 5 million tons a year with 2,200 workers. By installing two long wall robot machines, the company can mine 5 million tons with only 860 workers. (A robot miner can dig more than 6 tons a minute.) Despite the loss of employment, the United Mine Workers union generally favors long wall mines for two reasons: The union officials are quoted as saying, (1) "It would be far better to have highly productive operations that were able to pay our folks good wages and benefits than to have 2,200 shovelers living in poverty," and (2) "Long wall mines are inherently safer in their design." The company projects the financial data given in Table ST10.3 upon installation of the longwall mining.
TABLE STI0.3

(a) Estimate the firm's net after-tax cash flows over the project life if the firm uses the unit-production method to depreciate assets. The firm's marginal tax rate is 40%.
(b) Estimate the firm's net after-tax cash flows if the firm chooses to depreciate the robots on the basis of MACRS (seven-year property classification).

Robot installation (2 units) Total amount of coal deposit Annual mining capacity Project life Estimated salvage value Working capital requirement fully $19.3 million 50 million tons 5 million tons 10 years $0.5 million $2.5 million recovered at end of project life Expected additional revenues: Labor savings Accident prevention Productivity gain $6.5 million S0.5 million $2.5 million Expected additional expenses: O&M costs $2.4 million