Information related to the Machine Purchase Decision

• 123ONT is considering the acquisition of a new machine. The new machine is far more efficient than the present assembly machine used for its high-end vehicles. The machine would cost $87,600, would cut annual cash operating costs from $72,000 to $48,000, and would have zero terminal disposal price at the end of its useful life of three years. Assume the applicable income tax rate is 40% for this analysis. The after-tax required rate of return is 14%.

• The current machine has been used for one year. It will have no useful life after three more years. It cost $105,000 when acquired, has a current disposal price of $39,200, and a residual disposal price of $7,200 after three years.

• Both machines qualify for a capital cost allowance rate of 20%, declining balance.

• Discount rates

Present value of $1 for 14%, for three years	0.675
Future Value of $1 for 14%, for three years	1.482
Present value of $1 each year (annuity) , 14% for three years	2.322
Future value of $1 each year (annuity), 14% for three years.	3.440