The Craddock Co. is considering the purchase of a machine costing $780,000. This machine has an expected useful life of five years and an expected salvage value of $30,000. A CCA rate of 25 % will be used for tax purposes. The machine is expected to reduce variable costs of production and increase the companys production capacity resulting in an increase of net operating cash flow of $346,000 per year. The companys income tax rate is 38%. The companys minimum desired rate of return is 10 percent.

CCA tax shield formula:

REQUIRED:

Prepare a schedule to determine the after-tax net present value for the proposed investment. Should the investment be made? Why?

Item	Years	Cash Flow	Tax Rate	After-tax CF		PV