Evaluating the proposed acquisition of new milling machine

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Reference no: EM131444255

The Campbell Company is evaluating the proposed acquisition of a new milling machine. The machine’s base price is $108,000 and it would cost another $12,500 to modify for special use. The machine will be depreciated straight-line to zero over the three year life of the project. It could be sold after 3 years for $65,000. The machine would require an increase in NWC of $5,500. The milling machine would have no effect on revenues, but it is expected to save the firm $44,000 per year in before-tax operating costs, mainly labor. Campbell’s tax rate is 35%. Should this machine be purchased? Assume a discount rate of 12%.

Reference no: EM131444255

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