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Question: Apax Company is evaluating the acquisition of a new milling machine. The machine's base price is $180,000, and it would cost another $15,000 to install the machine. The company used 3- year straight line depreciation, and the machine is sold for $60,000 at the end of year three. The machine would require an increase in net working capital of $7, 500 at the start, which could be recouped at the end of year three. The machine would have no effect on revenues, but is expected to save the company $70,000 per year in before-tax operating costs. Apax's tax rate is 35%. If the project s cost of capital is 10%, should the company purchase the machine?

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Category:- Basic Finance
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