Question
James Company purchased a new machine that had an initial cost of $58,000. The estimated life of the machine is six years with no disposal
James Company purchased a new machine that had an initial cost of $58,000. The estimated life of the machine is six years with no disposal value. If James planned on investing an additional $20,000 at the end of the sixth year, the machine would last an additional four years beyond the time expected. The effective tax rate for James Company is 40-percent and extending the life of the machine will generate a gross margin of $4,000 in each of the additional years. Assuming a discount rate of 6-percent, determine the net benefit (or loss) from investing the additional $20,000 at the end of the sixth year.
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