Question
3. (all numbers are in thousands; 8 pt) Jaffrey Inc. is considering the purchase of an automation machine with a cost of $350. The
3. (all numbers are in thousands; 8 pt) Jaffrey Inc. is considering the purchase of an automation machine with a cost of $350. The machine has an economic life of 5 years. It will be fully depreciated over the 5-year life using the straight-line method, and then be sold at $70 at the end of the 5-year life. The machine will replace 2 workers whose combined annual salaries are $100. However, this machine also requires additional investment in net working capital of $30 in the beginning, which will be fully recovered at the end of the machine's life. The corporate tax rate is 30%. Is it worthwhile to purchase this automation machine if the company's required rate of return is 10% ?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started