Question
A new industrial press will cost Pops Metal Fabrication Shop $120,000 and will have a useful lifespan of 10 years. At that point (in 10
A new industrial press will cost Pops Metal Fabrication Shop $120,000 and will have a useful lifespan of 10 years. At that point (in 10 years) the press will have a salvage value of $0. The upside of this investment is that Pop will save an estimated $2,331 per year in production costs - prior to factoring in taxes and depreciation. The company always depreciates assets in a straight-line basis and has a marginal tax rate of 25%. The firms cost of capital is 12%. Based on the IRR criterion, is this a smart purchase for Pop? Explain why or why not and justify your answer analytically.
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