ME3232-F10-hw8 - ME 3232 Homework#8 due 1 A firm has been...

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ME 3232 Homework #8, due 11/22/10 1. A firm has been paying a print shop $18,000 annually to print the company’s monthly newsletter. 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. Microcomputer $5,500 Laser printer 8,500 Photo device/scanner 10,000 Software 2,000 Total cost basis $26,000 10,000 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 d = 30%. (a) Determine the projected net after-tax cash flows for the investment. (b) Compute the IRR for this project. (c) Is this project justifiable at MARR = 12%? 2. 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 recovered. 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%. The manufacturing facility will be classified as class 43 property with d = 30%. The firm’s MARR is also
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ME3232-F10-hw8 - ME 3232 Homework#8 due 1 A firm has been...

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