Should purchase the folding machine

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Company research, at a cost of $10,000, has recommended the acquisition of a folding machine based on the increase of specialty printing requests. The acquisition of the machine will cost $100,000 and it would cost another $5,000 to modify it for special use by the firm. The machine's economic life is 12 years after which it is expected it could be sold for $15,000. The machine will require an increase in net working capital of $1,000 which would become available again after the machine is sold. Two current employees would be trained to use the machine for a total cost of $750. Net additional operating revenues of $40,000 per year are anticipated. The firm's cost of capital is 18% and the tax rate is 40%.

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Question 1: Using NPV analysis, should the company accept this recommendation and purchase the folding machine?

Reference no: EM132601141

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