Question
Zogrgr, Inc is considering the purchase of a new machine of $55,000 that will increase rev. by $11,000 annually. The new machine will also enable
Zogrgr, Inc is considering the purchase of a new machine of $55,000 that will increase rev. by $11,000 annually. The new machine will also enable the firm to reduce the need for inventory by $12,000 when the machine is installed. The reduced need for inventory will be reversed at the conclusion of the project. Zpgrgr's marginal tax rate is 40% and the cost of capital is 5.6078%. Zogrgr will depreciate the machine to $5,000 using the 5 yr straight line method and expects to sell the machine for $12,000 at the end of yr 5. Describe the problem to your boss on whether you should accept or reject.
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