Question
Holmes Manufacturing is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs by $90,000 annually. Holmes would use the 3-year MACRS
Holmes Manufacturing is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs by $90,000 annually. Holmes would use the 3-year MACRS method to depreciate the machine, and management thinks the macine would have a value of $23,000 at the end of its 5-year operating life. The applicable depreciation rates are 33, 45, 15, and 7 percent as discussed in Appendix 12A. Working capital would increase by $25,000 intially, but it would be recovered at the end of the project's 5-year life. Holme's marginal tax rate is 40-percent, and a 10 percent WACC is appropriate for the project. Calcualte the project's NPV
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