Lauren's Lollipops is considering a purchasing a new candy mixer machine for $2.5 million which will be depreciated straight-line to a zero book value over its 10-year life.
She forecasts being able to sell it to some lucky sucker for $777,069. The machine won't save any money but it will reduce operating costs by $750,000 a year. The tax rate is 35 percent.
The project will require $50,000 of inventory which will be recouped when the project ends. Should this project be implemented if the firm requires a 14 percent rate of return?