8.Question 8

Consider the following data

- A machine costs $1200 and is depreciated using the straight line method over 5 years. That is, depreciation is 240 every year.

- The machine will generate operating profits before depreciation of $500 per year for 5 years. The first cash flow happens at the end of the first year after the machine is put in place.

- The tax rate is 20%

- Working capital needs will increase by $280 when the machine is placed in service and will be recaptured at the end of the life of the machine.

- There is no salvage value at the end of the five years (the machine is worthless).

The initial investment on the machine is