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 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?