Question
you must evaluate a proposal to buy a new milling machine. the base price is 108,000, and shipping and installation costs would add another 12,500.
you must evaluate a proposal to buy a new milling machine. the base price is 108,000, and shipping and installation costs would add another 12,500. the machine falls into the MACRS 3 year class, and it would be sold after 3 years for 65,000. The applicable depreciation rates are 33%, 45%, 15%, 7%. the machine would require a 5,500 increase in net operating working capital. there would be no effect on revenues, but pretax labor costs would decline by 44,000 per year. The marginal tax rate is 35% and the wacc is 12%. Also the firm spent 5,000 last year investigating the feasibility of using the machine. C) what are the projects annual cash flows during years 1, 2, and 3? D) should the machine be purchased? explain your answer
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