Explain your justification and approach

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Reference no: EM132027271

Question: Palermo Corporation (PC) is considering a project, which involves purchasing of an air blast sprayer machine. The machine will be used in the citrus production division of the company. The price of the machine delivered is $30,000 today; however, it also cost $5,000 to adjust/assemble the machine to make it complete for use. The machine is in 5 year MACRS class life for depreciation. Due to the efficiency of the machine, labor expenses of the division will be reduced by $10,000 per year and revenue of the division will be increased by $15,000 per year for the next six years. PC tax rate is 34% and the company's weighted average cost of capital is 10.5 percent.

Please advise PC to take this investment or not. You are required to explain your justification and approach in 4 lines and show your complete calculations. Show work.

Reference no: EM132027271

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