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PROBLEM 2 A company considers purchasing a high-capacity industrial 3-D printer. The management anticipate that the new machine will lead to more...
A company considers purchasing a high-capacity industrial 3-D printer. The management anticipate that the new machine will lead to more economic use of raw materials, reduced labor costs, and increased sales. The firm estimates that the installation of the machine will save $40,000 on raw materials and $50,000 on reduced labor costs and will increase sales by $60,000 (all estimates are per year).The proposed machine costs $500,000 and it will have a five year anticipated life and will be depreciated using MACRS depreciation method toward a zero salvage value (MACRS depreciation rates are given below). However, the company will be able to sell the machine in the after-market for 20% of its original costs at the end of year 5. The company requires a 11% rate of return from its investment and faces a 35% tax rate (the company overall is profitable).
