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Should the company purchase the saw

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Question - Blue Mountain Lumber Ltd is considering purchasing a new wood saw that costs $50,000. The saw will generate revenues of $100,000 per year for five years.  The cost of materials and labour needed to generate these revenues will total $60,000 per year, and other cash expenses will be $10,000 per year.  The machine is expected to sell for $1,000 at the end of its five-year life and will be depreciated on a straight-line basis over five years to zero. Blue Mountain's tax rate is 30%, and its opportunity cost of capital is 10%. 

Should the company purchase the saw? Explain why or why not.

Why do we use forecasted cash flows instead of forecast accounting earnings in estimating the NPV of a project?

Reference no: EM133053682

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