A salad oil bottling plant can either buy caps for the glass bottles at 5 cents...

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A salad oil bottling plant can either buy caps for the glass bottles at 5 cents each, or install $700,000 worth of plastic moulding equipment and manufacture the caps at the plant. The manufacturing engineer estimates that the material, labour, and other costs would be 3 cents per cap. (a) If 15 million caps per year are needed and the moulding equipment is installed, what is the payback period? (Round to one decimal place, e.g. 9.7 years.) (b) Assume that the plastic moulding equipment can be depreciated by straight-line depreciation, will have a five-year useful life, and will have no salvage value. If this method were allowed under tax law, assuming a 40% income tax rate, what is the after-tax payback period? (Apply the same rounding as above.) (c) What is the after-tax rate of return (IRR) (rounded to the nearest tenth of a percent)? A salad oil bottling plant can either buy caps for the glass bottles at 5 cents each, or install $700,000 worth of plastic moulding equipment and manufacture the caps at the plant. The manufacturing engineer estimates that the material, labour, and other costs would be 3 cents per cap. (a) If 15 million caps per year are needed and the moulding equipment is installed, what is the payback period? (Round to one decimal place, e.g. 9.7 years.) (b) Assume that the plastic moulding equipment can be depreciated by straight-line depreciation, will have a five-year useful life, and will have no salvage value. If this method were allowed under tax law, assuming a 40% income tax rate, what is the after-tax payback period? (Apply the same rounding as above.) (c) What is the after-tax rate of return (IRR) (rounded to the nearest tenth of a percent)?

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ANSWER a The payback period for the plastic moulding equipment is 31 years b ... View the full answer