Should the company purchase the new machine and why

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Reference no: EM132719455

The Triple-A Manufacturing Co. is considering the purchase of a machine. The machine will cost a total of $100,000 and has an expected useful life of 6 years. The company's cost of capital is 10% and the inflation rate in Canada is expected to be 5% annually for the foreseeable future.

The following projections are made:

The machine will produce 10,000 units annually.
In the first year, each unit will sell for $6.00.
Subsequent increases in the selling price are expected to be 4 percent per year.
Labour costs will be $12,000 in the first year of operations are expected to rise by 8 percent each year.
Materials will cost $14,000 in the first year and will rise by 5 percent annually.
Other expenses total $2,000 in the first year and will rise by 3 percent a year.
Corporate taxes are 40 percent.
The CCA rate is 20 percent.

Problem 1: Should the company purchase the new machine?

Reference no: EM132719455

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