How much can it afford to pay for this machine

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Reference no: EM13911503

A corporation is considering purchasing a machine that will save $150,000 per year before taxes. The cost of operating the machine (including maintenance) is $30,000 per year. The machine will be needed for five years, after which it will have a zero salvage value. MACRS depreciation will be used, assuming a three-year class life. The marginal income tax rate is 40%. If the firm wants 15% return on investment after taxes, how much can it afford to pay for this machine? [use closes approximate value]

Answer Choices: a. $250,000 b. $300,000 c. $350,000 d. $400,000

Reference no: EM13911503

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