You have been asked by the cfo of your company to evaluate

Reference no: EM13616679

You have been asked by the CFO of your company to evaluate the proposed acquisition of a new manufacturing machine. The machine's purchase price is $81,000, and it would cost another $12,500 to modify it so that it can be used by your firm. The machine, which falls into the MACRS 5-year class, would be sold after five years for $3,000. (Year 1, 20%, 2, 32% 3, 19% 4, 12% 5,11% 6, 6%.) Use of the machine would require an increase in net working capital (more expensive raw materials) of $2,000. The machine would have no effect on revenues, but it is expected to save the firm $33,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 35 percent, and its required rate of return for such investments is 14 percent. Should the machine be purchased?

Reference no: EM13616679

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