Define why should the machine be purchased

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Reference no: EM13327970

The Campbell Company is evaluating the proposed acquisition of a new milling machine. The machine's base price is $108,000, and it would cost another $12,500 to modify it for special use by your firm. The machine falls into the MACRS 3 year class, and it would be sold after 3 years for $65,000 (MACRS recover allowance percentages year 1, 33% 2, 45% 3, 15% 4, 7%). The machine would require an increase in net working capitol (inventory) of $5,500. The milling machine would have no effect on revenues, but it is expected to save the firm $44,000 per year in before-tax operating costs mainly labor. Campbell's marginal tax rate is 34 percent.

a) Solve for NPV

b) Should the machine be purchased?

Reference no: EM13327970

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