An industrial engineer proposed the purchase of a RFID Fixed Asset Tracking System for the company's warehouse and weave rooms. The engineer though that the system would provide a better system of locating cartons in the warehouse by recording the locations of the cartons and storing the data in the computer. The annual operating and maintenance (O&M) costs and expected annual savings are as follows:
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Cost of equipment and installation
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$85,500
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Project life (years)
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6
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Estimated salvage value
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$5,000
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in year 6
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Investment in working capital
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$15,000
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(fully recoverable at end of project)
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Expected savings on labor/material
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$65,800
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annual
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Expected Expenses
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$9,150
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annual
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Depreciation MACRS years
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5
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Marginal Tax rate
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35%
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a Determine the net after-tax cash flows over the project life.
b Compute the IRR for this investment.
c At MARR = 18%, is the project acceptable?