An injection molding machine can be purchased and installed for $75,000. It has a GDS recovery period of five years under the MACRS, but it will only be kept in service for four years. The net savings that can be attributed to this machine is estimated to be $25,000 in the first year,and to decrease by $2,500 each year in the following years. It is believed that the machine can be sold for $30,000 at the end of year four. An effective income tax rate of 35% is used by the company and the after tax MARR equals 15%. Should a recommendation be made to purchase the machine? Why or why not?
An injection molding machine can be purchased and installed for $75,000. It has a GDS recovery period of five years under the MACRS, but it will only be kept in service for four years. The net savings that can be attributed to this machine is estimated to be $25,000 in the first year,and to decrease by $2,500 each year in the following years. It is believed that the machine can be sold for $30,000 at the end of year four. An effective income tax rate of 35% is used by the company and the after tax MARR equals 15%. Should a recommendation be made to purchase the machine? Why or why not?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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An injection molding machine can be purchased and installed for $75,000. It has a GDS recovery period of five years under the MACRS, but it will only be kept in service for four years. The net savings that can be attributed to this machine is estimated to be $25,000 in the first year,and to decrease by $2,500 each year in the following years. It is believed that the machine can be sold for $30,000 at the end of year four. An effective income tax rate of 35% is used by the company and the after tax MARR equals 15%. Should a recommendation be made to purchase the machine? Why or why not?
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