Finance Assignment | Professional Writing
A company is considering purchasing a machine that would be depreciated straight line, down to a book value of $20,000 over its entire useful life of five years. Despite this, it is anticipated that the machine will be sold for $12,000 at the end of its useful life. The cost of the machine is $225,000 with an additional delivery and installation charge of $20,000 at time zero.
The machine will generate annual sales of $195,000 with annual operating costs equalling 60% of revenue. The corporate tax rate is 30%, renovation costs associated with preparing the factory floor for the machine are $20,000 (expensed immediately) and market research, required to obtain the information and figures provided above, was conducted at a cost of $6,250. The required rate of return on the project is 6% p.a. Given this information, should the company purchase the machine?
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