Investigating the feasibility of using the machine

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Reference no: EM131541692

You must evaluate a proposal to buy a new milling machine. The base price is $133,000, and shipping and installation costs would add another $16,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $59,850. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $6,000 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 $32,000 per year. The marginal tax rate is 35%, and the WACC is 14%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.

Reference no: EM131541692

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