Question
Warmack Machine Shop is considering a four-year project to introduce a new product. The project requires a new machinery. Buying the new machinery for $350,000
Warmack Machine Shop is considering a four-year project to introduce a new product. The project requires a new machinery. Buying the new machinery for $350,000 with $30,000 in shipping and $30,000 to install, is estimated to result in incremental annual revenue of $200,000. The incremental variable cost is likely to be $25,000 and the incremental fixed cost is estimated to be $50,000. The project falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $55,000. As a part of the NWC requirement, an initial investment in NWC of $20,000 along with an additional $3,100 in NWC has to be made for each succeeding year of the project. If the shop's tax rate is 35 percent and its discount rate is 9 percent, should the company implement the project?
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