Question
Net Present Value Analysis with Taxes. Morales Company would like to purchase a new machine for $100,000. The machine will have a life of 5
Net Present Value Analysis with Taxes. Morales Company would like to purchase a new machine for $100,000. The machine will have a life of 5 years with no salvage value, and is expected to generate annual cash revenue of $50,000. Annual cash expenses, excluding depreciation, will total $24,000. The company uses the straight-line depreciation method, has a tax rate of 40 percent, and requires a 12 percent rate of return.
Required:
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Find the net present value of this investment using the format presented in Figure 6.7. Round to the nearest dollar.
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Should the company purchase the machine? Explain.
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