Reference no: EM132587826

Your company uses recycled newspaper to make paper towels and is considering buying a machine that utilizes a proprietary de-inking technology that will reduce the cost of de-inking the recycled newspaper. The company can buy the machine for $300,000 and it is expected to have a five year life. In order to use the de-inking machine, it has to train multiple employees in how to use the machine appropriately. The cost of training is $10,000. In addition, the machine uses a special soap and the company buys enough inventory of the soap at Year 0 to last the first year at a cost of $50,000. Assume for simplicity that all three of these components of the initial investment occur at Year 0 and that the company is otherwise very profitable and faces a 40% tax rate. Assume that the company's cost of producing paper towels falls by $250,000 per year, excluding the cost of the soap in each of the next five years. Further assume that the company uses straight-line depreciation for tax purposes based on a five year life and an estimated salvage value of $0 for the machine. Note that at the end of Years 1 to 4, the company must buy another year's worth of soap to be used in the following year.

Question 1: What is change in the company's taxes paid for Years 1 to 5, due to operating the machine?