Question
Sam's Structures desires to buy a new crane and accessories to help move and install modular buildings. The machine sells for $75,000 and requires working
Sam's Structures desires to buy a new crane and accessories to help move and install modular buildings. The machine sells for $75,000 and requires working capital of $10,000. Its estimated useful life is six years and it will have a salvage value of $17,560. Recovery of working capital will be $10,000 at the end of its useful life. Annual cash savings from the purchase of the machine will be $20,000. The company currently owns a crane that would be disposed of if the new crane is purchased. The old crane was purchased for $30,000 and has accumulated depreciation of $25,000. The company could sell the old crane for $3,000.
a. Compute the net present value at a 12% required rate of return. Ignore taxes
b. Using the original information, re-compute the net present value including tax considerations. Assume a 25% tax rate.
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