Question

A firm is considering purchasing a machine that costs ​$56000. It will be used for six​ years, and the salvage value at that time is expected to be zero. The machine will save ​$45000 per year in​ labor, but it will incur ​$9000 in operating and maintenance costs each year. The machine will be depreciated according to​ five-year MACRS. The​ firm's tax rate is 40​%, and its​ after-tax MARR is 14​%. Should the machine be​ purchased?

Answer 1

C287 : x fix =56000*0.2 E A B C D F G H I J L M Net income EBIT Tax@40% 286 Depreciat 285 Year EBDT in 0 287 1 $ 36,000 $11,200 288 2$ 36,000 $ 17,920 289 3 $ 36,000 $10,752 290 4 $ 36,000 $ 6,451 291 5 $ 36,000 $ 6,451 292 6 $ 36,000 $ 3,226 24,800 18,080 25,248 29,549 29,549 32,774 9,920 7,232 10,099 11,820 11,820 13,110 14,880 10,848 15,149 17,729 17,729 19,665 Deprecia Operating tion cash flows Investment (56,000) 11,200 26,080 17,920 28,768 10,752 25,901 6,451 24,180 6,451 24,180 3,226 22,890 K Net after- tax cash flows -$56,000 $ 26,080 $ 28,768 $ 25,901 $ 24,180 $ 24,180 $ 22,890 PVIF@ 14% 1.000 $ 0.877 $ 0.769 $ 0.675 $ 0.592 $ 0.519 $ 0.456 $ Present value (56,000) 22,877 22,136 17,482 14,317 12,559 10,428 293 294 Net present value $ 43,799 295 296 Yes, project should be accepted.

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