Bowler Company is considering purchasing a packaging machine for $20,000 that will have a residual value of $100 after 10 years. It would be depreciated using the straightline method. The machine would reduce labor costs in the shipping department by

$8,000 per year. Experience with such machines suggests that finished goods that could be sold for $3,500 would be ruined each year by the packaging machine. Ownership of the machine also would increase property taxes and insurance (paid annually) by $200 per year. Bowler’s required rate of return is 20%.

Required: (1) Prepare an analysis to determine whether the purchase of this machine is an acceptable capital expenditure for Bowler.

(2) What is the highest price Bowler should be willing to pay for the packaging machine? lop5