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(15 pts) 5. The president of The Molding Corporation has asked you to evaluate the proposed acquisition of a new molding machine. The machine's price
(15 pts) 5. The president of The Molding Corporation has asked you to evaluate the proposed acquisition of a new molding machine. The machine's price is $200,000. The machine will be depreciated to a zero salvage value over 8 years on a straight line basis. Purchase of the machine would require an increase in net operating working capital of $20,000. The machine would increase the firm's before-tax revenues by $50,000 per year but would also increase operating costs by $20,000 per year. The machine is expected to be used for eight years and then sold for $40,000. The firm's marginal tax rate is 25%, and the project's cost of capital is 12%. Should the new machine be purchased? Show computations
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