The Marcus Company is evaluating the proposed acquisition of a new machine. The machine's base price is...

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The Marcus Company is evaluating the proposed acquisition of anew machine. The machine's base price is $350,000, andit would cost another $125,000 to modify it for specialuse. The machine falls into the MACRS 3-year class, andit would be sold after 4 years for $40,000. The machinewould require an increase in net working capital of $20,000. Themachine would have no effect on revenues, but it is expected tosave the firm $170,000 per year for 4 years in before-tax operatingcosts. . The company's marginal tax rate is 30 percentand its cost of capital is 10 percent.
Calculate NPV. Should the machinery be purchased? Why or whynot?

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Computation of annual depreciation Year Cost Basis of asset MACRS Rate Annual depreciation Book Value 1 475000 3333 15831750 31668250 2 4445 21113750 10554500 3 1481 7034750 3519750 4 741 3519750 0 Cost Basis of asset Base price modification cost 350000 125000 475000 Computation of operating cash See Answer

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The Marcus Company is evaluating the proposed acquisition of anew machine. The machine's base price is $350,000, andit would cost another $125,000 to modify it for specialuse. The machine falls into the MACRS 3-year class, andit would be sold after 4 years for $40,000. The machinewould require an increase in net working capital of $20,000. Themachine would have no effect on revenues, but it is expected tosave the firm $170,000 per year for 4 years in before-tax operatingcosts. . The company's marginal tax rate is 30 percentand its cost of capital is 10 percent.Calculate NPV. Should the machinery be purchased? Why or whynot?