Question
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?
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