Machine is expected to generate before-tax cash savings

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Tech Engineering Company is considering the purchase of a new machine to replace an existing one. The old machine was purchased 5 years ago at a cost $20,000 and it is being depreciated on a straight-line basis to a zero salvage value over a 10-year life. The current market value of the old machine is $14,000. The new machine, which falls into the MACRS 5-year class, has an estimated life of 5 years, it costs $30,000, and Tech plans to sell the machine at the end of the fifth year for $1,000. The new machine is expected to generate before-tax cash savings of $3,000 per year. The company's tax rate is 40 percent. What is the 1RR of the proposed project?

Reference no: EM131359782

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