The Manufacturing Division of Ohio Vending Machine Company is considering its Toledo plant€™s request for a half€inch€capacity automatic screw€cutting machine to be included in the division€™s 2013 capital budget:

• Name of project: Mazda Automatic Screw Machine  
• Project cost: $68,701
• Purpose of project: To reduce the cost of some of the parts that are now being subcontracted by this plant, to cut down on inventory by shortening lead time, and to better control the quality of the parts. The proposed equipment includes the following cost basis:

Machine cost€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦.. $48,635

Accessory cost€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦.....$8,766

Tooling€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦............. $4,321

Freight€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦............. $2,313

Installation€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦....... $2,110

Sales tax€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦......... $2,556

Total cost€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦........ $68,701

• Anticipated savings: as shown in the accompanying table.
• Tax depreciation method: seven€year MACRS.
• Marginal tax rate: 40%.
• MARR: 15%.
  

(a) Determine the net after€tax cash flows over the project life of six years. Assume a salvage value of $3,500.
(b) Is this project acceptable based on the PW criterion?
(c) Determine the IRR for this investment.

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Hours Present Proposed Machine Present Proposed Machine Item Center Labor Center Labor Method Method $7,700 Setup 350 hrs $17,600 Run 2,410 hrs 800 hrs Overhead Indirect labor Fringe benefits $3,500 $8,855 $1,350 Maintenance Tooling $6,320 $890 Repair Supplies Power Taxes and insurance $4,840 $795 $763 Other relevant costs: $3,210 Floor space $122,468 Subcontracting $27,655 Material $210 Other Total $122,468 $83,688 $38,780 Operating advantage