Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

South Pack is considering investing in a packaging machine that costs $99,000 to purchase. There will be an additional $9,500 in non-capital (one time) pre-tax

South Pack is considering investing in a packaging machine that costs $99,000 to purchase. There will be an additional $9,500 in non-capital (one time) pre-tax expense to install the machine. The company receives $2.10 in revenue per package while incurring $0.45 in variable costs per package. South pack expects to produce 34,000 packages per year using this machine. The annual fixed costs of operating the machine are $25,000. The machine will have a salvage value of $18,000 at the end of its 7 year lifespan. The company will increase its net working capital by $17,850 immediately to support the operation of the new machine, which would be completely recovered after the machines useful life. The machine`s CCA rate is 25%, the firm`s tax rate is 37%, and it uses an 11% cost of capital. What is the machines NPV? Should South Pack acquire the machine?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals of Investments Valuation and Management

Authors: Bradford Jordan, Thomas Miller

7th edition

978-0078096785, 78096782, 978-0077861636, 77861639, 978-0078115660

More Books

Students also viewed these Finance questions