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ABC Copies may buy a high-volume copier. The machine costs $100,000 and will be depreciated straight-line over 5 years to a salvage value of $20,000.
ABC Copies may buy a high-volume copier. The machine costs $100,000 and will be depreciated straight-line over 5 years to a salvage value of $20,000. ABC anticipates that the machine actually can be sold in 5 years for $30,000. The machine will save $20,000 a year in labor costs, but will require an increase in working capital of $10,000 at time 0. The working capital will be kept at this level each year until the end of the project. The firm's marginal tax rate is 35 percent and the discount rate is 8 percent. Should ABC buy the machine?
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