12-34 (modified) An engineer is working on the layout of a new research and experimentation facility. Two plant operators will be required. If, however, an additional $150,000 of instrumentation and remote controls were added, the plant could be run by a single operator. The total before-tax cost of each plant operator is projected to be $52,500 per year. The instrumentation and controls will be depreciated using the MACRS 5-year depreciation schedule. (a) Find the rate of return on the project, and the after tax payback period. (b) Based on a MARR of 15%, is this a desirable investment?

Tax @ Up Front Year Spending Annual Cash Flow MACRS Factor Taxable Income After Tax Cash Flow Depreciation 22.58% Payback