You Have Been Asked to Evaluate the Purchase of a New

question 22

Essay

You have been asked to evaluate the purchase of a new machine for your company. It will cost $60,000, and it falls into the MACRS 3-year class (Yr. 1 - 33.3%; Yr. 2 - 44.4%; Yr. 3 - 14.8%; Yr. 4 - 7.5%). The purchase will require a $6,000 increase in repair parts inventory. Parts are expensed for tax purposes at the time they are acquired. The machine will replace one $25,000/year operator. It is expected to last for four years when it can be sold including any spare parts still on hand for $5,000. The tax rate is 40% and your company's cost of capital is 12%.
Project the project's cash flows and calculate its NPV and IRR

---

Definitions:

Internal Marketing

The strategy of treating employees as internal customers to align, motivate, and empower them to serve the actual customers more effectively.

Product, Price

The combination and strategy of setting a product's value in the market and the amount consumers are willing to pay for it.

Internal Product

A product developed for and used exclusively within a company, not intended for the external market.

Additional Employee Training

The process of providing employees with further education or skills after their initial training to improve their performance or prepare them for additional responsibilities.