Considering the purchase of new machine for project

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Reference no: EM132055681

"You are considering the purchase of a new machine for a project. Details of this potential purchase are provided below.

-The project life is 3 years.

The machine costs $198,000.

* You will pay cash for half of this machine immediately, and will borrow the remaining half at 6.2% annual rate compounded annually over 3 years.

* The machine will be depreciated using a seven year MACRS approach.

Annual O&M costs (expenses) of the machine are $20,000.

Annual labor savings (revenues) are $123,000.

Salvage value at the end of year 3 will be $61,500.

Working capital requirement is initially $32,000. Any investment in working capital will be recovered at the end of the project.

Assume an income tax rate and gains tax rate of 42%.

Find the NPW of this project based on a MARR of 12.5%."

Reference no: EM132055681

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