Marketing Capital Investment Decision

timer Asked: Mar 2nd, 2016

Question description

Isaac, Inc. is thinking about purchasing a new machine.  The new machine would cost $150,000 with an additional $30,000 for delivery of the machine.  The machine will have a life of 5 years and will be depreciated using the straight line method.  The machine can be sold for $25,000 at the end of its life.  This machine is expected to produce cost savings of $35,000 the first two years and $50,000 per year after.  It will take a $10,000 adjustment to net working capital if the machine is purchased.  The company has a required return of 7% and is in the 35% tax bracket.  Calculate the NPV of the project and determine if the company should purchase the machine.

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