What is the present value of the proposed service

Reference no: EM132465545

Texcom's machine is in need of service. They received a proposal from Rolland Company for a one-time service expenditure of $820,000 that Texcom will pay and have done in the next few days. This expenditure can be depreciated according to the 7-year MACRS schedule. The machine will be out of service for a few months, and the serviced machine will resume service in one year. Post-service operating costs are $1,181,000, but will increase annually at a 1.25% rate of inflation. Operating costs and depreciation will begin one year after the machine is back in service. The remaining useful life of the machine will be 12 years and it will have no salvage value. Cost of capital is 8.5% and tax rate is 35%.

Question: What is the present value of the proposed service of the machine?

Reference no: EM132465545

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