Nuff folding box company inc is considering purchasing a

Reference no: EM13618335

Nuff folding box company, Inc is considering purchasing a new gluing machine. The gluing machine costs $50,000 and requires installation cost of $2,500. This outlay would be partially offset by the sale of an existing gluer. The existing gluer originally cost $10,000 and is four years old . it is being depreciated under MACRS using a five-year recovery schedule and can currently be sold for $15,000. The existing gluer has a remaining useful life of five years. If held util year 5, the existing machine's market value would be zero. Over its five year life, the new machine should reduce operating costs (excluding depreciation) by $17,000per year. Training costs of employees who will operate the new machine will be a one time cost of $5,000 which should be included in the initial outlay. The new machine will be depreciated uner MACRS using a five year recover period. The firm has a 12percent cost of capital and a 40 percent tax on ordinary income and capital gains.

Questions:

1. What is the net present value of the project?

2. What is the initial outlay for this project?

Reference no: EM13618335

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