Question
Logic Corp. is considering buying a new machine, which would save on labor costs over its life of 4 years. The machine costs $191,000 and
Logic Corp. is considering buying a new machine, which would save on labor costs over its life of 4 years. The machine costs $191,000 and will be depreciated straight-line over 4 years to a salvage value of $28,000, at which point the machine will be sold at the salvage value. The machine will save the company $79,000 a year in labor costs (pre-tax) but will require a one-time increase in working capital, mainly machine supplies, of $17,000 at time t=0 (which is recoverable in the last year of the project). The firm's marginal tax rate is 32%, and the opportunity cost of capital is 10%. What is the NPV of the project?
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