Question
Marhofer Meats is considering purchasing a new sausage making machine. The installed cost of the new machine is $480,000. The new sausage maker will require
Marhofer Meats is considering purchasing a new sausage making machine. The installed cost of the new machine is $480,000. The new sausage maker will require additional working capital of $29,000 as well.
If purchased, Marhofer will depreciate the new machine over its five year economic life to a zero salvage value. However, the company estimates that the actual market value of the machine will be $70,000 when it is sold in five years.
The machine will produce no new revenues, but it will save Marhofer $165,000 annually in operating expenses.
The companys tax rate is 34%. The required rate of return on this project of 10%.
Should Marhofer buy this meat maker?
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