Jaffrey inc is considering the purchase of an automation, Ask an Expert

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Jaffrey Inc. is considering the purchase of an automation machine with a cost of $350. The machine has an economic life of 5 years. It will be fully depreciated over the 5-year life using the straight-line method, and then be sold at $70 at the end of the 5-year life. The machine will replace 2 workers whose combined annual salaries are $100. However, this machine also requires additional investment in net working capital of $30 in the beginning, which will be fully recovered at the end of the machine’s life. The corporate tax rate is 30%.

Is it worthwhile to purchase this automation machine if the company’s required rate of return is 10%?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92806059

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