Raytheon wishes to use an automated environmental chamber in the manufacture of electronic components. The chamber...

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Raytheon wishes to use an automated environmental chamber in themanufacture of electronic components. The chamber is to be used forrigorous reliability testing and burn-in. It is installed for$800,000, $350,000 of which is borrowed at 11% for 5 years, andwill have a salvage value of $150,000 after 8 years. Its use willcreate an opportunity to increase sales by $650,000 per year andwill have operating expenses of $250,000 per year. Corporate incometaxes are 40%. Develop tables using a spreadsheet to determine theATCF for each year and the after-tax PW, AW, IRR, and ERR, if thechamber is kept for 8 years. After-tax MARR is 10%. Determine foreach year the ATCF and the PW, FW, AW, IRR, and ERR for theinvestment if:
straight-line depreciation is used over 8 years with nohalf-year convention and the loan is paid back using Method 1(interest only at the end of each year of the loan, plus principalat the end of the last year).
straight-line depreciation is used over 8 years with nohalf-year convention and the loan is paid back using Method 2(equal annual principal payments plus interest on the unpaid loanbalance).
straight-line depreciation is used over 8 years with nohalf-year convention and the loan is paid back using Method 3(equal annual principal plus interest payments during each year ofthe loan).
MACRS-GDS depreciation is used with the appropriate propertyclass and the loan is paid back using Method 1 (interest only atthe end of each year of the loan, plus principal at the end of thelast year).
MACRS-GDS depreciation is used with the appropriate propertyclass and the loan is paid back using Method 2 (equal annualprincipal payments plus interest on the unpaid loan balance).
MACRS-GDS depreciation is used with the appropriate propertyclass and the loan is paid back using Method 3 (equal annualprincipal plus interest payments during each year of the loan).

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straightline depreciation is used over 8 years with no halfyearconvention and the loan is paid back using Method 1Increase in sales per year650000Increase in operating expenses250000Before Tax Operating Income400000After tax operating income240000400000140NYear012345678AInitial Cash Flow800000350000450000BAfter tax operating income240000240000240000240000240000240000240000240000CDepreciation Tax shield4000040000400004000040000400004000040000DInterest tax shield1540015400154001540015400154001540015400ELoan See Answer

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Transcribed Image Text

Raytheon wishes to use an automated environmental chamber in themanufacture of electronic components. The chamber is to be used forrigorous reliability testing and burn-in. It is installed for$800,000, $350,000 of which is borrowed at 11% for 5 years, andwill have a salvage value of $150,000 after 8 years. Its use willcreate an opportunity to increase sales by $650,000 per year andwill have operating expenses of $250,000 per year. Corporate incometaxes are 40%. Develop tables using a spreadsheet to determine theATCF for each year and the after-tax PW, AW, IRR, and ERR, if thechamber is kept for 8 years. After-tax MARR is 10%. Determine foreach year the ATCF and the PW, FW, AW, IRR, and ERR for theinvestment if:straight-line depreciation is used over 8 years with nohalf-year convention and the loan is paid back using Method 1(interest only at the end of each year of the loan, plus principalat the end of the last year).straight-line depreciation is used over 8 years with nohalf-year convention and the loan is paid back using Method 2(equal annual principal payments plus interest on the unpaid loanbalance).straight-line depreciation is used over 8 years with nohalf-year convention and the loan is paid back using Method 3(equal annual principal plus interest payments during each year ofthe loan).MACRS-GDS depreciation is used with the appropriate propertyclass and the loan is paid back using Method 1 (interest only atthe end of each year of the loan, plus principal at the end of thelast year).MACRS-GDS depreciation is used with the appropriate propertyclass and the loan is paid back using Method 2 (equal annualprincipal payments plus interest on the unpaid loan balance).MACRS-GDS depreciation is used with the appropriate propertyclass and the loan is paid back using Method 3 (equal annualprincipal plus interest payments during each year of the loan).