Q9

A company is planning to automate its production process which requires an initial investment of $250,000. The automation is expected to save $80,000 annually in labor costs for the next 4 years. The company’s cost of capital is 9% and its tax rate is 28%. The present value factors for 9% are:

Year	PV Factor
1	0.917
2	0.842
3	0.772
4	0.708

Requirements:

1. Calculate the annual after-tax savings.
2. Determine the present value of the savings.
3. Compute the NPV of the project.
4. What is the IRR of the project?
5. Evaluate whether the automation project should be undertaken.