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Lugar Industries is considering an investment in a new machine with the following information:
Machine cost 225,000
Setup cost 25,000
Salvage value 50,000
Life 5 years Net operating expense savings:
End of Year 1 $ 50,000
End of Year 2 $ 90,000
End of Year 3 $110,000
End of Year 4 $120,000
End of Year 5 $120,000
WACC 10%
Tax rate 40%
Assumed value of the machine at end of 5 years is $50,000 If Lugar buys the machine, calculate the following answers. Remember to include the impact of depreciation, taxes, and salvage value.
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