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Scotts Investors, Inc. is considering the purchase of a $360,000 computer with an economic life of five years. The computer will be fully depreciated over
Scotts Investors, Inc. is considering the purchase of a $360,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The salvage value of the computer is expected to be $60,000 in five years. The computer will replace five office employees whose combined salaries are $105,000. The machine will also immediately lower the firm's required net working capital by $80,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 25%. The entire project can be funded with a loan at a pre-tax cost of debt of 20%. Should Scotts' buy the computer
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