Question
Need work in excel Ace Widget is considering an investment in a new widget machine for $530,000. The following information has been collected: The machine
Need work in excel
Ace Widget is considering an investment in a new widget machine for $530,000. The following information has been collected:
The machine has a 5 year life, 0 salvage, ST line depreciation assumed for both financial statements and taxes
The new machine will produce 15,000 widgets per year, $40/widget revenue in year 1, price increases by 5%/year thereafter
The production cost = $20/widget in year 1, cost increases 6% annually thereafter
Annual fixed cost of operation = $75,000
The new machine will require an immediate investment in working capital of $25,000 (received back at end of 5 years)
Tax rate = 34%, Appropriate discount rate is 15%.
Should Ace invest in the new machine?
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