Reference no: EM131065635
George's is considering the purchase of a new machine to replace one that was bought 2 years ago. The new machine will cost $52, 000 installed and will require a $2000 increases in inventory and a $1500 increase in accounts payble. Both machines will be depreciated on the 3 year schedule (. 33,. 45,. 15,. 07). The old machine can be sold now for $20, 000 or if maintained for three more years it will have a market value then of $5000. It cost $41, 000 when it was new. The new machine will provide revenues of $60000 and expenses of $30, 000 each of the three years of its economic life. It should then have a market value of $10, 000. The old machine would provide revenues of $40, 000 and expenses of $30, 000 for each of the next three years also. If the company has an 18% cost of capital is the project acceptable. Show the initial investment, cashflows and the terminal value, as wll as the NPV or IRR and your decision.
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: George's is considering the purchase of a new machine to replace one that was bought 2 years ago. The new machine will cost $52, 000 installed and will require a $2000 increases in inventory and a $1500 increase in accounts payble. Show the initial i..
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