1)Your division is considering the purchase of a Cramit packaging machine for $200,000. You project that the operating and maintenance costs (OMC) will be $50,000 this year and that they will increase by $20,000 per year. The salvage value is expected to be $150,000 at anytime you sell the machine for the next several years. Your MARR is 10%. What is the optimum economic life you predict for the machine?
Your old packaging will have an EUAC of $128,000, if you keep it for its optimum economic life. Should you buy the Cramit?
2)Our company is considering the installation of a new material handling system that costs $150,000. This system is expected to save our company $32,000 per year in labor costs for the next 15 years. Maintenance costs are expected to average $8,000 per year. Using straight line depreciation, $0 salvage value, and a total income tax rate (ITR) of 40%, determine the after-tax rate of return for the this project.