Question
BUBBA has provided you with the following information: Full price of machine is $140,000. The increase in net working capital is $2,000. BUBBA has a
BUBBA has provided you with the following information:
Full price of machine is $140,000.
The increase in net working capital is $2,000.
BUBBA has a 25% marginal tax rate.
The machine falls into the MACRS 3-year class (33%, 45%, 15%, and 7% depreciation rates).
BUBBA will use the machine for 4 years and then plans to sell it for $25,000 at the end of year 4.
The machine is expected to provide incremental revenue of $60,000 per year and incremental cost of $15,000 per year for the life of the machine. There will be no transportation costs related to the machine.
BUBBA has a WACC of 10%.
How would you calculate the NPV (Net Present Value)? Also, would you recommend the purcase of the new machine?
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