Making Capital Investment Decisions Home Work Problem

7/23/2019 Making Capital Investment Decisions Home Work Problem

http://slidepdf.com/reader/full/making-capital-investment-decisions-home-work-problem 1/1

Making Capital Investment Decisions

Isaac, Inc. is thinking about purchasing a new machine. The new machine would cost$150,000 with an additional $30,000 for deliver of the machine. The machine will havea life of 5 ears and will be depreciated using the straight line method. The machine can

 be sold for $!5,000 at the end of its life. This machine is e"pected to produce costsavings of $35,000 the first two ears and $50,000 per ear after. It will take a $10,000ad#ustment to net working capital if the machine is purchased. The compan has areuired return of %& and is in the 35& ta" bracket. 'alculate the ()* of the pro#ect anddetermine if the compan should purchase the machine.

+ear 1 ! 3 5

'ost -avings

epreciation

/IT

Ta"es

 (et Income

'2

+ear 0 1 ! 3 5

'2

'hange in ('

'apitalInvestment

 (et '2