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Question (12 points) XYZ Corporation is considering the purchase of new machinery for $200,000. The machinery is expected to increase production, resulting in $75,000 new
Question (12 points) XYZ Corporation is considering the purchase of new machinery for $200,000. The machinery is expected to increase production, resulting in $75,000 new sales per year. The cost to operate the machine is $25,000. The machine will be depreciated on a straight-line basis to $0 over 10 years. The project will require a net increase of $40,000 in NWC at the beginning of the project and half of that amount will be returned at the project's termination. In addition, XYZ Corp. expects to sell the machine for $120,000 at the end of the project, five years from now. If the appropriate discount rate is 10% and the marginal tax rate is 30%, should the firm accept the project? What type of project is described above (expansion, replacement, mandatory, etc.)
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