engineering economics 7

Your client, , is going to build a new manufacturing facility. The budget for completing the facility and purchasing and installing the machinery is estimated to be $2.5 million (assume $2 million for the facility and $500,000 for machinery). It will have a net annual income cash flow of $750,000 for the next 10 years. Initially, they were planning to locate the facility near their US headquarters location where their total incremental tax rate would be 30%. However, they have been approached by the Irish government and want to evaluate the option of building the facility in Ireland against their original plan of building in the US. Assume that the interest rate is 8% per year. You will need to research tax methods and depreciation rules in Ireland and compare with those of the US.

Your consulting firm, [Your name] Consulting, has been hired to complete this evaluation and present a report with an analysis of the options that supports a recommendation you will make on where to locate the plant. The approach they have requested you to take is to calculate the after-tax present worth of adding the new manufacturing facility in each of the two countries (Ireland and the United States) and determine where it would be better to place the investment. You will need to research tax methods and depreciation rules in Ireland, and compare what you find with those of the US. Use these results to recommend where to make the investment.

 

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