Lundholm Corp. is considering the purchase of a robotic machine that would replace a manual labor production task. This project would require an upfront cash commitment of $2,000,000 to purchase and install the equipment. The equipment would have an expected life of 5 years and generate annual labor cost savings of $600,000. Assume the equipment would be depreciated over 5 years with no salvage value.
Prepare a time line for this project that shows both the cash flow and accounting earnings effects for the project's 5-year life. Ignore taxes. Enter cash outflows and subtractive amounts as negative numbers.
Cash flows
Period: 0 1 2 3 4 5
Accounting earnings
Period: 1 2 3 4 5
Expense savings
Depreciation