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A firm is considering the purchase of an automatic machine for $6,200. The machine has an installation cost of $800 and zero salvage value at the end of its expected life of five years. Depreciation is by the straight-line method with the half-year convention. The machine is considered a five-year property. Expected cash savings before tax is $1,800per year over the five years. The firm is in the 40 percent tax bracket. The firm has determined the cost of capital (or minimum required rate of return) as 10 percent after taxes. Should the firm purchase the machine? Use the NPV method.

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Accounting Basics, Accounting

Category:- Accounting Basics
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