ot Answered eBook Rader Railway is determining whether to purchase a new rail setter, which has a base price of $394,000 and would cost another $58,000 to install. The setter will be depreciated according to the MACRS 3-year class of assets, and it would be sold after three years for $196,000. Using the setter requires a $26,000 increase in net working capital. Although it would have no effect on revenues, the setter should save the firm $171,000 per year in before-tax operating costs (excluding depreciation). Rader's marginal tax rate is 40 percent, and its required rate of return is 13 percent. Should the setter be purchased? Do not round intermediate calculations. Round your answer to the nearest cent. Use a minus sign to enter a negative value, if any. The setter -Select- be purchased because the net present value, that is $ is -Select- zero..

ot Answered eBook Rader Railway is determining whether to purchase a new rail setter, which has a base price of $394,000 and would cost another $58,000 to install. The setter will be depreciated according to the MACRS 3-year class of assets, and it would be sold after three years for $196,000. Using the setter requires a $26,000 increase in net working capital. Although it would have no effect on revenues, the setter should save the firm $171,000 per year in before-tax operating costs (excluding depreciation). Rader's marginal tax rate is 40 percent, and its required rate of return is 13 percent. Should the setter be purchased? Do not round intermediate calculations. Round your answer to the nearest cent. Use a minus sign to enter a negative value, if any. The setter -Select- be purchased because the net present value, that is $ is -Select- zero..

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

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Rader Railway is determining whether to purchase a new rail setter, which has a base price of $394,000 and would cost another $58,000 to install. The setter will be depreciated according to the MACRS 3-year class of assets, and it would be sold after three years for $196,000. Using the setter requires a $26,000 increase in net working capital. Although it would have no effect on revenues, the setter should save the firm $171,000 per year in before-tax operating costs (excluding depreciation). Rader's marginal tax rate is 40 percent, and its required rate of return is 13 percent. Should the setter be purchased? Do not round intermediate calculations. Round your answer to the nearest cent. Use a minus sign to enter a negative value, if any. The setter **(SHOULD/SHOULD NOT)** be purchased because the net present value, that is (Greater than/Less than/Equal to) is zero. $
Rader Railway is determining whether to purchase a new rail setter, which has a base price of $394,000 and would cost another $58,000 to install. The setter will be depreciated according to the MACRS 3-year class of assets, and it would be sold after three years for $196,000. Using the setter requires a $26,000 increase in net working capital. Although it would have no effect on revenues, the setter should save the firm $171,000 per year in before-tax operating costs (excluding depreciation). Rader's marginal tax rate is 40 percent, and its required rate of return is 13 percent. Should the setter be purchased? Do not round intermediate calculations. Round your answer to the nearest cent. Use a minus sign to enter a negative value, if any. The setter_____________ be purchased because the net present value, that is $__________ , is ______ zero.
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