XYZ Company is evaluating the proposed acquisition of a new machine. The machine will cost $190,000, and it will cost another $33,000 to modify it for special use by the firm. The machine will be depreciated using straight line for three years to zero book value, and it will be sold after 3 years of use for $110,000. The machine will require an increase in net working capital of $9,000 and will have no effect on revenues, but is expected to save the firm $90,000 per year in before-tax operating costs, mainly labour. The company's marginal tax rate is 40%. What is the NPV for the proposed acquisition if the cost of capital is 14%?
XYZ Company is evaluating the proposed acquisition of a new machine. The machine will cost $190,000, and it will cost another $33,000 to modify it for special use by the firm. The machine will be depreciated using straight line for three years to zero book value, and it will be sold after 3 years of use for $110,000. The machine will require an increase in net working capital of $9,000 and will have no effect on revenues, but is expected to save the firm $90,000 per year in before-tax operating costs, mainly labour. The company's marginal tax rate is 40%. What is the NPV for the proposed acquisition if the cost of capital is 14%?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
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XYZ Company is evaluating the proposed acquisition of a new machine. The machine will cost $190,000, and it will cost another $33,000 to modify it for special use by the firm. The machine will be depreciated using straight line for three years to zero book value, and it will be sold after 3 years of use for $110,000. The machine will require an increase in net working capital of $9,000 and will have no effect on revenues, but is expected to save the firm $90,000 per year in before-tax operating costs, mainly labour. The company's marginal tax rate is 40%.
What is the
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