Question
Polymer Mechanics, Inc. is considering a new plastics process. The 30new process will entail an investment of $100,000 in machinery, which is expected to last
Polymer Mechanics, Inc. is considering a new plastics process. The 30new process will entail an investment of $100,000 in machinery, which is expected to last 5 years and will have a salvage value of $10,000. The new process will save $35,000 in wages each year and increase revenues by $15,000 per year. Furthermore, the process will require
an increase in working capital (at t = 0) of $5,000. If the firms tax rate is 34% and the opportunity cost of capital is 15%, should Polymer invest in the project? (Assume straight line depreciation to a book value of zero at the end of the project.)
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