Company research, at a cost of $10,000, has recommended the acquisition of a folding machine based

on the increase of specialty printing requests.

The acquisition of the machine will cost $100,000 and it would cost another $5,000 to modify it for

special use by the firm. The machines economic life is 12 years after which it is expected it could be

sold for $15,000. The machine will require an increase in net working capital of $1,000 which would

become available again after the machine is sold.

Two current employees would be trained to use the machine for a total cost of $750.

Net additional operating revenues of $40,000 per year are anticipated.

The applicable CCA rate is 30%, the firms cost of capital is 18% and the tax rate is 40%.

Required:

Using NPV analysis, should the company accept this recommendation and purchase the folding

machine?

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