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Table 11.5 Nuff Folding Box Company, Inc. Is Considering Purchasing a New

question 108

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Table 11.5
Nuff Folding Box Company, Inc. is considering purchasing a new gluing machine. The gluing machine costs $50,000 and requires installation costs of $2,500. This outlay would be partially offset by the sale of an existing gluer. The existing gluer originally cost $10,000 and is four years old. It is being depreciated under MACRS using a five-year recovery schedule and can currently be sold for $15,000. The existing gluer has a remaining useful life of five years. If held until year 5, the existing machine's market value would be zero. Over its five-year life, the new machine should reduce operating costs (excluding depreciation) by $17,000 per year. Training costs of employees who will operate the new machine will be a one-time cost of $5,000 which should be included in the initial outlay. The new machine will be depreciated under MACRS using a five-year recovery period. The firm has a 12 percent cost of capital and a 40 percent tax on ordinary income and capital gains.
-The net present value of the project is ________. (See Table 11.5)

Definitions:

Compulsions

Repetitive behaviors or mental acts that an individual feels driven to perform in response to an obsession, or according to rules that must be applied rigidly.

Repetitive Behaviors

Actions performed over and over again, which can be a characteristic of certain psychological conditions, such as OCD.

Obsessive Thoughts

Intrusive, unwanted thoughts that often cause distress or anxiety and may lead to compulsive behaviors in an attempt to alleviate the distress.

Obsessive-Compulsive Disorder (OCD)

A mental disorder where individuals experience repetitive, unwanted thoughts (obsessions) and behaviors (compulsions) they feel compelled to perform.