Considering purchasing new wood saw

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Reference no: EM131490198

Rocky Mountain Lumber, Inc. is considering purchasing a new wood saw that costs $50,000. The saw will generate revenues of $100,000 per year for five years. The cost of materials and labor needed to generate these revenues will total $60,000 per year, and other cash expenses will be $10,000 per year. The machine is expected to sell for $1,000 at the end of its five-year life, and will be depreciated on a straight-line basis over five years to zero. Rocky Mountain’s tax rate is 34 percent and its opportunity cost of capital is 10 percent. Should the company purchase the saw? Explain why or why not.

Reference no: EM131490198

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