(4) (8 pts) ABC Inc. purchased a robotic welding system for $485,000. The equipm

Question

(4) (8 pts) ABC Inc. purchased a robotic welding system for $485,000. The equipment has O&M; per year. The robotic welding system will result in an annual saving of s197,000. Inc. will sell the drilling equipment to a smaller company for 100,000 after 5 years of service. Assume that straight-line depreciation is used (assume the system's life time for depreciation is 5 years). The company uses an after-tax MARR rate of 8% and they are in the 37% tax bracket. Determine the after-tax net present worth of the asset over the 5-year service period.

Explanation / Answer

NPV: Annual revenue 197000 Less: Annual expense 22000 Net annual savings 175000 Less: Depreciation 77000 (485000-100000)/5 Net income before tax 98000 Less: tax @ 37% 36260 Net income after tax 61740 Add: Depreciation 77000 Net Annual inflows 138740 PVF at 8% for 5 years 3.9927 Present value of inflows 553947 Less: Initial Investment 485000 Net present value 68947

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