Question
M.T. Glass, Inc. is considering the acquisition of a new piece of machinery to replace an old, outdated machine currently used in its operations. The
M.T. Glass, Inc. is considering the acquisition of a new piece of machinery to replace an old, outdated machine currently used in its operations. The new machine would cost $210,000 and is expected to last 9 years. The new machine would require a repair of $25,000 in year five and another repair costing $20,000 in year seven. In addition, purchasing this new machine would require an immediate investment of $40,000 in working capital which would be released for investment elsewhere at the end of the 9 years. The new machine is expected to have a $10,000 salvage value at the end of 9 years. The new machine is expected to result in a cost savings of $50,000 per year. M.T. Glass has a cost of capital of 12%. Calculate the net present value (NPV) of the new machine.
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