Problem
A salad oil bottling plant can either buy caps for the glass bottles at cents each, or install $
worth of plastic moulding equipment and manufacture the caps at the plant. The manufacturing
engineer estimates that the material, labour, and other costs would be cents per cap.
a If million caps per year are needed and the moulding equipment is installed, what is the
payback period? Round to one decimal place, eg years.
b Assume that the plastic moulding equipment can be depreciated by straightline depreciation,
will have a fiveyear useful life, and will have no salvage value. If this method were allowed
under tax law, assuming a income tax rate, what is the aftertax payback period? Apply
the same rounding as above.
c What is the aftertax rate of return IRRrounded to the nearest tenth of a percent
