Solve Problem 2.18 including the effect of taxes and depreciation. Tax regulations indicate that the economic life of the conveyor is 20 years with a salvage value of $4,000. The conveyor system is depreciated using the SYD method. The company’s tax rate is 52%.

Problem 2.18

In a paper mill, a new conveyor system is being considered to move the freshly chipped wood to the next stage in the production line. The cost of the new conveyor is $55,250. Yearly operating and maintenance costs for the conveyor are estimated to be $13,260. The conveyor is expected to last for 20 years with no salvage value. Because of the new conveyor’s design, more paper product can eventually be produced by the mill. This new production level results in an increase in annual income of $28,500. Determine the rate of return on the investment in the new conveyor.