Management is considering the purchase of new machine

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Reference no: EM131178108

Management is considering the purchase of a new machine with a purchase price of $900,000. If purchased employees will complete a series of training sessions that are expected to cost $20,000. The machine is expected to last 5 years. It will be depreciated for tax purposes as the rate of $168,000 per year. Management has estimated that the machine can be sold for $60,000 at the end of its 5 year life. Purchase and use of the machine is expected to increase sales substantially and quickly. In fact, annual EBITDA is expected to be larger in each of the five years, compared to our results if we do not purchase the machine, requring a one-time increase in working capital of $40,000 at the beginning of the investment period. If the firm is subject to a tax rate of 30% and a required rate of return of 15%, by how much must the equal annual EBITDA increase in each of the five years in order for the purchase of the new machine to be justified? (Show Your Work).

Reference no: EM131178108

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