The Psychic Cookie Company is considering the purchase of a new machine to produce fortune cookies in January 2010.The fortune cookie machine will cost $270,000 and Psychic's management expects it to last 6 years.If it purchases the new machine it will sell its old machine with a book value of $20,000 for $25,000 cash.At the end of six years the new machine is expected to have no salvage value.Depreciation each year on the fortune cookie machine will be $45,000 and Psychic's tax rate is 30%.The Pretax cash flows expected from the machine at the end of the following year are:
Required:
(A.)Calculate the net present of the new machine if the cost of capital is 15%.
(B.)Indicate whether or not Psychic should buy the new machine and explain the basis for your decision (do not use positive or negative NPV as an explanation):
Definitions:
Firm-specific Human Capital
Refers to the unique skills, knowledge, and abilities employees develop that are specifically valuable to their current employer.
Generic Human Capital
The competencies, knowledge, skills, and abilities that are held by individual employees and that are useful to the firm.
Succession Management
A strategic process for identifying and developing new leaders who can replace old leaders when they leave, are promoted, or retire.
Human Capital Flows
The movement of skills, knowledge, and talents among regions, industries, or organizations, influencing productivity and growth.
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