Question
Cookies R Us Incorporated is evaluating a new cookie cutting machine that will cost $700,000. The machine can be depreciated on a straight-line basis to
Cookies R Us Incorporated is evaluating a new cookie cutting machine that will cost $700,000. The machine can be depreciated on a straight-line basis to zero over 10 years, and it will have a salvage value of $15,000 at the end of its life. The machine will provide the company with annual after-tax savings of $120,000. In order to operate the new machine, net working capital will be increased by $45,000. This change in net working capital will be recuperated at the end of the machine's life. The marginal corporate tax rate is 40% and the required rate of return is 15%. What is the net present value of this cost-cutting asset?
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