Reconsider Problem 10.17. Suppose that the project requires a $30,000 investment in working capital at the beginning of the project and the entire amount will be recovered at the end of project life. How does this investment in working capital change the net cash flows series?
Data From Problem 10.17
An auto‐part manufacturing company is considering the purchase of an industrial robot to do spot welding, which is currently done by skilled labor. The initial cost of the robot is $250,000, and the annual labor savings are projected to be $125,000. If purchased, the robot will be depreciated under MACRS as a seven‐year recovery property. This robot will be used for five years after which the firm expects to sell it for $50,000. The company’s marginal tax rate is 35% over the project period.
(a) Determine the net after‐tax cash flows for each period over the project life.
(b) Is this a good investment at of 15%?
