A salad oil bottlingplant can eitherpurchasecaps for the glass bottles at 5 cents each or install $500,000 worthof plastic moldingequipmentand manufacture the caps at the plant. The manufacturing engineer estimates the material, labor, and other costs would be 3 cents per cap. (a) If 12 million caps per year are needed and the molding equipment is installed, what is the payback period? (b) The plastic molding equipment would be depre-. ciated by straight-line depreciation using a 5-year useful life and no salvage value. Assuming a 40% income tax rate, what is the after-tax payback period, and what is the after-tax rate of return?
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