An auto-part manufacturing company is considering the purchase of an in- dustrial 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 MARR of 15%?