Subject: Engineering Economics

A Scara Robot (MACRS 7-year property class) arm is purchased for $800,000 by borrowing 50% of the total cost. Installation and training costs are $50,000. The loan is to be repaid with four equal total annual payments at an annual compound rate of 15%. It is anticipated that the robot will be used for 7 years and then sold for 25% of the equipment cost. Annual operating and maintenance expenses are estimated to be $10,000/year increasing by 10% per year thereafter. Savings for the first year Y$ are unknown but they are certain that will increase by 3% per year thereafter. The firm uses a MARR of 15% and a tax rate of 25% for its economic analyses. Perform an after tax cash flow break even analysis to determine the savings for the first year such that company breaks even at MARR. The company uses all allowable deductions during the first year.