QUESTION $4$

RTCC Mechanical is planning to buy an testing device that would cost $$20,000.$ As a result of this investment, quality improvement savings of $$3,700$ are expected each year. The salvage value of the testing device is estimated to be $$3,000$ after $9$ years of service life. RTCC Mechanical has an after$-$tax MARR $($Minimum Acceptable Rate of Return$)$ of $11\%$ and it is being taxed at $40\%.$ Assuming tax rules for capital allowance for industrial equipment to be calculated using straight$-$line depreciation scheme. Answer the following, assuming a life of $7$ years and a $0$ salvage value.

a$)$ Based on after$-$tax present worth analysis, should this investment be made? $($Hint: use generic after$-$tax calculations$)$

$(12$ Marks$)$

b$)$ How much is the approximate after$-$tax IRR $($Internal Rate of Return$)$ on this investment?

$(8$ Marks$)$

c$)$ Based on approximate after$-$tax IRR analysis, should this investment be made?

$(5$ Marks$)$