Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Simplicity Investors, Inc. i1s a Wellington-based consulting company. The company is currently considering the purchase of a $385.000 automating machine with an economic life of

image
Simplicity Investors, Inc. i1s a Wellington-based consulting company. The company is currently considering the purchase of a $385.000 automating machine with an economic life of five years. The machine will be fully depreciated over five years using the straight-line method. The retired machine is expected to have a market value of $30,000. During its service period. the machine will replace two office employees whose combined annual salaries are $90.000. The machine also will immediately lower the firm's required net working capital by $70.000. This amount of net working capital will need to be restored once the machine is sold. The corporate tax rate is 30 percent. Is it worthwhile to buy the machine if the appropriate discount rate is 9%. [2 marks]

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management Principles and Applications

Authors: Sheridan Titman, Arthur J. Keown, John H. Martin

13th edition

134417216, 978-0134417509, 013441750X, 978-0134417219

More Books

Students also viewed these Finance questions