Evaluate proposal to buy new costume machine

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Reference no: EM131489290

Dayman Inc. has asked you to evaluate a proposal to buy a new costume machine. The base price is $110,000, and shipping and installation costs would add another $15,000. The machine falls into the MACRS 3-year class, and it would be sold after another 3 years for $65,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $5,500 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $49,000 per year. The marginal tax rate is 35%, and the WACC is 12%. Also, the firm spent $15,000 last year investigating the feasibility of using the machine. What is the project’s cash flow at year 3 and should the project be accepted? Round answers to nearest dollar. You must show your work to receive full credit.

Reference no: EM131489290

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