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You must evaluate a proposal to buy a new milling machine. The base price is $107,000, and shipping and installation cos

Posted: Tue Nov 16, 2021 7:51 am
by answerhappygod
You must evaluate a proposal to buy a new milling machine. The
base price is $107,000, and shipping and installation costs would
add another $16,000. The machine falls into the MACRS 3-year class,
and it would be sold after 3 years for $37,450. The applicable
depreciation rates are 33%, 45%, 15%, and 7%. The machine would
require a $8,500 increase in net operating working capital
(increased inventory less increased accounts payable). There would
be no effect on revenues, but pretax labor costs would decline by
$59,000 per year. The marginal tax rate is 35%, and the WACC is 8%.
Also, the firm spent $4,500 last year investigating the feasibility
of using the machine.