The Marcus Company is evaluating the proposed acquisition of a new machine. The machine's base...
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The Marcus Company is evaluating the proposed acquisition of a new machine. The machine's base price is $350,000, and it would cost another $125,000 to modify it for special use. The machine falls into the MACRS 3-year class, and it would be sold after 4 years for $40,000. The machine would require an increase in net working capital of $20,000. The machine would have no effect on revenues, but it is expected to save the firm $170,000 per year for 4 years in before-tax operating costs. The company's marginal tax rate is 21% and its cost of capital is 10%.
a. Calculate the cash outflow at time zero.
b. Calculate the net operating cash flows for Years 1, 2, 3, and 4
c. Calculate the non-operating terminal year cash flow.
d. Calculate NPV. Should the machinery be purchased? Why or why not?
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