A restaurant is considering buying a new dishwashing machine. The machine would cost $60,000 today. When sold as scrap at the end of three years, the machine should generate $3,000 as scrap. The restaurant could continue hiring college students on a part time basis to wash dishes at an annual payroll cost of $22,000. The dishwasher would increase outflows for power and water, manual washing leads to great breakage. Considering all these costs, the dishwasher would save $2,000 in operating costs, If the restaurant purchases the machine, it would use the straight-line depreciation method.

Use the net present value method to determine whether they should purchase the dishwasher.

1.1 The Owner claims he puts all his money in his mattress and never goes near banks. So his opportunity cost of capital is a less lumpy mattress. Ignore taxes for now.

1-2. He meets an investment banker and now realizes there is more to consider. He now estimates his cost of capital is 10%. Ignore taxes here, too.

1-3. He then meets a tax advisor and realizes that taxes ought to be considered as well. The tax rate on his business return is 40%.