Question
Jefferson Products Inc. is considering purchasing a new automatic press brake, which costs $310,000 including installation and shipping. The machine is expected to generate net
Jefferson Products Inc. is considering purchasing a new automatic press brake, which costs $310,000 including installation and shipping. The machine is expected to generate net cash inflows of $65,000 per year for 7 years. At the end of 7 years, the book value of the machine will be $0, and it is anticipated that the machine will be sold for $100,000. If the press brake project is undertaken, Jefferson will have to increase its net working capital by $110,000. When the project is terminated in 7 years, there will no longer be a need for this incremental working capital, and it can be liquidated and made available to Jefferson for other uses. Jefferson requires a 14 percent annual return on this type of project and its marginal tax rate is 40 percent. Use Table II and Table IV to answer the questions.
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