4d. Michelin is considering going "lights out" in the mixing area of the business that operates 24/7. Currently, personnel with a loaded cost of$600,000 per year are used to manually weigh real rubber, synthetic rubber, carbon black, oils, and other components prior to manual insertion in aBanbary mixer that provides a homogeneous blend of rubber for making tires (rubber products). New technology is available that has the reliability andconsistency desired to equal or exceed the quality of blend now achieved manually; it will replace all of the manual effort described above. Theincome-tax rate is 25% and the after-tax MARR is 10%.Determine the after-tax CF for Year 2 (only - not a total) if they decide to continue with manual mixing.Edit Format Table

The tax on cash outflow that employee cost would be a saving in tax and hence it would result in a…

Answered: Determine the after-tax CF for Year 2…

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Accounting

Determine the after-tax CF for Year 2 (only - not a total) if they decide to continue with manual mixing.

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter8: Tactical Decision-making And Relevant Analysis

Section: Chapter Questions

Problem 41E

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Michelin is considering going “lights out” in the mixing area of the business that operates 24/7. Currently, personnel with a loaded cost of $600,000 per year are used to manually weigh real rubber, synthetic rubber, carbon black, oils, and other components prior to manual insertion in a Banbary mixer that provides a homogeneous blend of rubber for making tires (rubber products). New technology is available that has the reliability and consistency desired to equal or exceed the quality of blend now achieved manually. It requires an investment of $2.5 million, with $110,000 per year operational costs and will replace all of the manual effort described above. The planning horizon is 8 years and there will be a $300,000 salvage value at that time for the new technology. The income-tax rate is 25% and the after-tax MARR is 10%. Determine the annual cost of purchasing the new technology and the EUAC of the two scenarios