Raytheon wishes to use an automated environmental chamber in the manufacture of electronic components. The chamber is to be used for rigorous reliability testing and burn-in. It is installed for $1,460,000 and will have a salvage value of $230,000 after 8 years. Raytheon will borrow $800,000 at 12% to be paid back over 8 years. The environmental chamber will create an opportunity to increase sales by $650,000 per year and will have operating expenses of $250,000 per year. All dollar amounts are expressed in real dollars. Depreciation follows MACRS 5-year property, taxes are 25%, the real after-tax MARR is 10%, and inflation is 4.8%. Determine the actual after-tax cash flows for each year and the PW, FW, AW, IRR, ERR, IRR, and ERR, for each of the following loan payback methods: a. Method 1: pay the accumulated interest at the end of each interest period and pay the principal at the end of the loan period. b. Method 2: make equal principal payments, plus interest on the unpaid balance at the end of the period. c. Method 3: make equal annual payments during each year of the loan, with the amount of interest in each payment varying from year to year. d. Method 4: make a single payment of principal and interest at the end of the loan period. e. Which is the preferred method for Raytheon? (Method 1, Method 2, Method 3, Method 4) a. Method 1: ATCF = $ ATCF1 = $ ATCF2 = $ ATCF3 = $ ATCF4 = $ ATCF5 = $ ATCF 6 = $ ATCF7 = $ ATCF3 = $ PWST = $ FW$T = $ AW$T = $ IRR = % ERRC = % IRR = % ERR = % b. Method 2: ATCFO = $ ATCF1 = $ ATCF2 = $ ATCF3 = $ ATCF4 = $ ATCF5 = $ ATCF6 = $ ATCF7= $ ATCF8 = $ PWST = $ FWST = $ AWST = $ IRR = % ERRC = % IRR = % ERR % c. Method 3: ATCFO = $ ATCF1 = $ ATCF2 = $ ATCF3 = $ ATCF4 = $ ATCF5 = $ ATCF6 = $ ATCF7= $ ATCF8 = $ PW$T = $ FW$T = $ AWST = $ IRRC= % ERR % IRRI % ERR,= % d. Method 4: ATCFO = $ ATCF1 = $ ATCF2 = $ ATCF3 = $ ATCF4 = $ ATCF5= $ ATCF6= $ ATCF, = $ ATCF8 = $ PWST = $ FWST = $ AWST = $ IRRC= % ERR = % IRR = % ERR = % Round your answer to 2 decimal places. Present IRR and ERR in percentage format. The tolerance is 65 for dollar answers and + 0.1 for percentage answers. e. Raytheon wishes to use an automated environmental chamber in the manufacture of electronic components. The chamber is to be used for rigorous reliability testing and burn-in. It is installed for $1,460,000 and will have a salvage value of $230,000 after 8 years. Raytheon will borrow $800,000 at 12% to be paid back over 8 years. The environmental chamber will create an opportunity to increase sales by $650,000 per year and will have operating expenses of $250,000 per year. All dollar amounts are expressed in real dollars. Depreciation follows MACRS 5-year property, taxes are 25%, the real after-tax MARR is 10%, and inflation is 4.8%. Determine the actual after-tax cash flows for each year and the PW, FW, AW, IRR, ERR, IRR, and ERR, for each of the following loan payback methods: a. Method 1: pay the accumulated interest at the end of each interest period and pay the principal at the end of the loan period. b. Method 2: make equal principal payments, plus interest on the unpaid balance at the end of the period. c. Method 3: make equal annual payments during each year of the loan, with the amount of interest in each payment varying from year to year. d. Method 4: make a single payment of principal and interest at the end of the loan period. e. Which is the preferred method for Raytheon? (Method 1, Method 2, Method 3, Method 4) a. Method 1: ATCF = $ ATCF1 = $ ATCF2 = $ ATCF3 = $ ATCF4 = $ ATCF5 = $ ATCF 6 = $ ATCF7 = $ ATCF3 = $ PWST = $ FW$T = $ AW$T = $ IRR = % ERRC = % IRR = % ERR = % b. Method 2: ATCFO = $ ATCF1 = $ ATCF2 = $ ATCF3 = $ ATCF4 = $ ATCF5 = $ ATCF6 = $ ATCF7= $ ATCF8 = $ PWST = $ FWST = $ AWST = $ IRR = % ERRC = % IRR = % ERR % c. Method 3: ATCFO = $ ATCF1 = $ ATCF2 = $ ATCF3 = $ ATCF4 = $ ATCF5 = $ ATCF6 = $ ATCF7= $ ATCF8 = $ PW$T = $ FW$T = $ AWST = $ IRRC= % ERR % IRRI % ERR,= % d. Method 4: ATCFO = $ ATCF1 = $ ATCF2 = $ ATCF3 = $ ATCF4 = $ ATCF5= $ ATCF6= $ ATCF, = $ ATCF8 = $ PWST = $ FWST = $ AWST = $ IRRC= % ERR = % IRR = % ERR = % Round your answer to 2 decimal places. Present IRR and ERR in percentage format. The tolerance is 65 for dollar answers and + 0.1 for percentage answers. e
