ME 3232 Homework #8, due 11/22/10
A firm has been paying a print shop $18,000 annually to print the company’s monthly
The agreement with this print shop has now expired, but it could be renewed
for a further 5 years.
The new sub-contracting charges are expected to be 12% higher
than they were in the previous contract.
The company is also considering the purchase of
a desktop publishing system with a high-quality laser printer driven by a microcomputer.
With appropriate word/graphics software, the newsletter can be composed and printed in
near typeset quality.
A special device is also required to print photos in the newsletter.
The following estimates have been quoted by a computer vendor.
Total cost basis
The salvage value of each piece of equipment at the end of 5 years is expected to be only
10% of the original cost.
The company’s marginal tax rate is 40%, and the whole
desktop publishing system is classified as CCA class 10 property with
Determine the projected net after-tax cash flows for the investment.
Compute the IRR for this project.
Is this project justifiable at MARR = 12%?
The Motch Machinery Company is planning to expand its current spindle product line.
The required machinery would cost $500,000.
The building to house the new production
facility would cost $1.5 million.
The land would cost $250,000, and $150,000 working
capital would be required.
The product is expected to result in additional sales of
$675,000 per year for 10 years, at which time the land can be sold for $500,000, the
building for $700,000, and the equipment for $50,000.
All of the working capital will be
The annual disbursements for labor, materials, and all other expenses are
estimated to be $425,000.
The firm’s income tax rate is 40%, and any capital gains will
be taxed at 30%.
The building will be depreciated with d = 4%.
facility will be classified as class 43 property with d = 30%.
The firm’s MARR is also