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Question: A factory is considering the purchase of a new machine for one of its units. The machine costs $100,000. The machine will be depreciated on a straight line basis over its 10-year life to a salvage value of zero. The machine is expected to save the company $50,000 annually, but in order to operate it the factory will have to transfer an employee (with a salary of $40,000 a year) from one of its other units. A new employee (with a salary of $20,000 a year) will be required to replace the transferred employee. What is the NPV of the purchase of the new machine if the relevant discount rate is 8% and corporate tax rate is 35%?

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Category:- Basic Finance
Reference No.:- M92285736

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