Question
4. Builtrite D is considering the purchase of a new machine for $500,000 which would require a $5000 installation charge. Employees would need to go
4. Builtrite D is considering the purchase of a new machine for $500,000 which would require a $5000 installation charge. Employees would need to go through a brief training session to operate the machine properly which would cost $25,000. In addition, an increase in net working capital of $30,000 would be required. The machine has an expected life of 10 years and due to efficiencies, labor costs are expected to decrease $150,000 annually (before depreciation and taxes). Assume straight-line depreciation, a 34% marginal tax rate and a cost of capital of 15%. Should Builtrite D purchase the machine?
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