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The Springdale Corporation plans to purchase a demolition and wrecking machine to save labor costs. The...

The Springdale Corporation plans to purchase a demolition and wrecking machine to save labor costs. The machine costs $60,000 and has a salvage value of $10,000 at the end of 5 years. The machine is expected to be in operation for 5 years, and it will be depreciated by the straight line method up to the salvage value. The corporation specifies an after-tax MARR including inflation of 10% and has an income tax rate of 34%. The annual inflation rate is expected to be 5% during the next 5 years. If the uniform annual net benefit before tax in terms of base-year dollars for the next 5 years is $20,000, is the new investment worthwhile?

Homework Answers

Answer #1

NPV calculation:

Since NPV of the investment is positive, the investment can be made.

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