An automobile-manufacturing company is considering purchasing an industrial robo
ID: 2593574 • Letter: A
Question
An automobile-manufacturing company is considering purchasing an industrial robot to do spot welding, which is currently done by skilled labor. The initial cost of the robot is $185,000, and the annual labor savings are projected to be $120,000. If purchased, the robot will be depreciated according to declining balance with depreciation rate of 35%. The robot will be used for seven years, at the end of which time the rm expects to sell it for $40,000. The company's marginal tax rate is 35% over the project period. Determine the net after-tax cash ows for each period over the project life.
In Excel Formate as follow
IRR =
Book Vaue
Income Statement End of Year 0 1 2 3 4 5 Revenue Expenses Labor Material Overhead Depreciation Taxable income Income Tax Net Income Cash Flow Statement Operating Activities Net Income Depreciation Investment Activities Milling Machine Salvage Value Gain Tax Working Captial Financing Activities Borrowed funds Repayment of principle Net Cash Flow PW =IRR =
Explanation / Answer
Year 0 1 2 3 4 5 6 7 Initial cost of the robot -185000 Cash flow fromSalvage (after-tax) 29174 CAPEX & Salvage-----1 -185000 0 0 0 0 0 0 29174 Savings in labor 120000 120000 120000 120000 120000 120000 120000 Less: Depreciation -64750 -42088 -27357 -17782 -11558 -7513 -4883 EBT 55250 77913 92643 102218 108442 112487 115117 Tax at 35% -19338 -27269 -32425 -35776 -37955 -39370 -40291 EAT 35913 50643 60218 66442 70487 73117 74826 Add Back: Depn. 64750 42088 27357 17782 11558 7513 4883 Operating Cash flow-----2 100663 92731 87575 84224 82045 80630 79709 Net annual cash flows------1+2 -185000 100663 92731 87575 84224 82045 80630 108883
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