Proposed acquisition of a new standardized test templater

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Reference no: EM131506721

You have been asked by the CEO of Gastric Anxiety Supplier (GAS) to evaluate the proposed acquisition of a new Standardized Test Templater (PowerPoint based) for the firm's accounting area. A recently completed $100,000 marketing survey demonstrates a high demand for the product. The equipment's basic price is $740,000 and it would cost another $220,000 to modify it for high altitude (Wasatch Mountain) use. The templater, which has a MACRS 3-year recovery period (recovery allowances of 33%, 45%, 15%, and 7% for years 1, 2, 3, and 4, respectively), would be sold after 3 years for $200,000. Use of the equipment would require a one-time increase in net working capital (spare parts inventory) of $75,000. The templater would have no effect on revenues, but it is expected to save the firm $440,000 per year in pre-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 40 percent.

Reference no: EM131506721

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