Xennon Electric is considering buying a new printed circuits tester that cost $16000. As a result of this deal, the company will be saving $3000 per year due to expected quality improvements. The slavage value of the tester is estimated to be $2000 after 8 years of service life. After-Tax MARR of Xenon Electric is 10% and it is taxed at 45%. Tax rule in Xenon Electric country specify that capital allowance for industrial equipment is to be calculated using striaght-line depreciation scheme, with a life of 7 years and a 0 salvage value.
a) Based on after-tax present worth analysis, should this investment be made?(Hint: use generic after-tax calculations)
b) How much is the approximate after-tax IRR(Internal Rate of Return) on this investment?
c) Based on approximate after-tax IRR analysis, should this investment be made?
d) Does the approximate after-tax IRR analysis always lead to the same decision of the accurate after-tax IRR analysis?