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Estimate future cash inflows for the proposed project

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Reference no: EM13513723

The Wessels Corporation is considering installing a new conveyor for materials handling in a warehouse. The conveyor will have an initial cost of $75,000 and an installation cost of $5,000. Expected benefits of the conveyor are: (a)Annual labor cost will be reduced by $16,500, and (b)breakage and other damages from handling will be reduced by $400 per month. Some of the firm's costs are expected to increase as follows: (a)Electricity cost will rise by $100 per month, and (b)annual repair and maintenance of the conveyor will amount to $900. Assume that the firm uses the MACRS rules for depreciation in the five-year property class. No salvage value will be recognized for tax purposes. The conveyor has an expected useful life of eight years and a projected salvage value of $5,000. The tax rate is 40 percent.

1. Estimate future cash inflows for the proposed project.

2. Determine the project's NPV at 10 percent. Should the firm buy the conveyor?

Reference no: EM13513723

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