Question
The purchase of a machine that has a cutting capacity of 1,400 m ^ 2 / hour is being evaluated. Variable costs (expenses) for this
The purchase of a machine that has a cutting capacity of 1,400 m ^ 2 / hour is being evaluated. Variable costs (expenses) for this machine are estimated at $ 500 / hour. Additionally, it is considered that it must be operated by 2 people. Each operator has a salary of $ 150 / hour. The cost of the machine is $ 5 million and an additional $ 250,000 for installation expenses that must also be paid in year 0. Currently the income is $ 1,600,000 but with the purchase of the machine it is estimated that they will increase by 35%. (the increase is effective from year 1 and then they remain fixed) You should consider that both income and expenses should be evaluated from year 1, that they will remain fixed and that the capacity required by the company for the machine is 2,800,000 m ^ 2 / year. The machine is going to be depreciated using the sum of the digits of the years method (SDA) considering a depreciable life of 10 years and that it will not have a salvage value. It should be considered in the evaluation that the machine can be sold at a price of $ 1,000,000 in year 10. With a tax rate of 25%, an inflation rate of 4% and a risk premium of 14%. Should the investment be made for retained earnings? Justify your answer.
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