Reference no: EM131152507

The company spent $10,000 to survey the market whether the new machine would be effective in production. The machine's basic price is $50,000, and it will cost another $10,000 to install. The employees are supposed to obtain a training session before operating the machine, costing $4,000. The machine can be sold after four years for $8,000. Use of the machine will require an increase in account receivables by $5,000, a decrease in inventory by $4,000, and an increase in account payables by $12,000. The machine is expected to increase the sales revenue by $5,000, but it is expected to save the firm $10,000 per year in operating costs, mainly labor. To acquire this new machine, the firm would have to borrow $20,000 at 10% interest from its local bank, resulting in interest payments of $2,000 per year. The machine falls into the 4-year straight-line method for depreciation. The firm's marginal tax rate is 34%. Assume the required rate of return is 10%.