New smelting furnace for specialty materials division

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ALCOA is considering purchasing a new smelting furnace for their specialty materials division. Purchased today, the furnace costs $223,600 and will be used for the next 6 years. At the end of this time, ALCOA believes they will be able to sell the furnace for $10,000 (salvage value) in the second hand equipment market. The new furnace is expected to save $120,400 in energy costs per year but will require an additional $41,280 per year in operating and maintenance costs. The furnace will be depreciated according to a five-year MACRS schedule. ALCOA's tax rate is 40%. Should ALCOA purchase this furnace? To answer this question develop the net cash flows for each year and assume an MARR of 15%

Reference no: EM131923971

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