A manufacturing company is considering acquiring a new injection molding machine

Question

A manufacturing company is considering acquiring a new injection molding machine at a cost of a $120,000 Because of a rapid change in product mix the need for this particular machine is expected to last only eight years after which time the machine is expected to have a salvage value of $10,000. The annual operating cost is estimated to be $ 10,000. The annual operating cost is estimated to be $ 11,000. The addition of the machine to the current production facility is expected to generate an annual revenue of $ 48,000. The firm has only $ 70,000 available form its equity funds. so it must borrow the additional $ 50,000 required at an interest rate of 10% per year with repayment of principal and interest in eight equal annual amounts. The applicable marginal income for the firm is 40%. Assume that the asset for a seven year MACRS property class. Determine the after-tax cash flows. Determine the NPW of this project at MARR = 14%.

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