A corporation is considering a proposal for the purchase of a machine that will save $130,000 per

Question:

A corporation is considering a proposal for the purchase of a machine that will save $130,000 per year before taxes. The cost of operating the machine, including maintenance, is $20,000 per year. The machine will be needed for five years after which it will have a zero salvage value. MACRS depreciation will be used, assuming a three‐year class life. The marginal income‐tax rate is 40%. If the firm wants 12% IRR after taxes, how much can it afford to pay for this machine?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...

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