Question
Radar Railway is determining whether to purchase a new rail setter, which has a base price of $432,000 and would cost another $52,000 to install.
Radar Railway is determining whether to purchase a new rail setter, which has a base price of $432,000 and would cost another $52,000 to install. The setter falls into the MACRS 3-year class, and it would be sold after three years for 220,000. Using the setter requires a $22,000 increase in net working capital. Although it would have no effect on revenues the setter should save the firm $185,000 per year in before-tax operating costs (excluding depreciation). Radars marginal tax rate is 40% and its required rate of return is 14%. Should the setter be purchased
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