Considering the purchase of new cnc machine

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Reference no: EM131886471

HT Tool Co is considering the purchase of a new CNC machine. This project is not expected to change sales, but should save the firm in labor costs. The labor savings is expected to be $46,000 (before tax). The machine costs $110,000. It will require $14,000 in modifications to support the needs of HT Tool. An increase in inventory (net working capital) of $6,500 will be necessary. ? The machine will be depreciated using MACRS with a 3-year class life (half-year convention). ? The firm’s tax rate is 35%. ? The plan is to sell the machine after 3 years and the expected selling price then is estimated at $65,000. ? The hurdle rate for this project is 11% Begin with a blank worksheet and show your setup: a. What is the initial investment of this project? (Year 0 net cash flow). b. What are the net operating cash flows for years 1, 2, and 3? c. What is the terminal (NOT operating) cash flow in year 3? d. What are the NPV and IRR for this project? e. Should be accepted?

Reference no: EM131886471

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