Rader Railway is determining whether to purchase a new rail setter, which has a base price...

 

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Rader Railway is determining whether to purchase a new rail setter, which has a base price of $421,000 and would cost another $49,000 to install. The setter will be depreciated according to the MACRS 3-year class of assets, and it would be sold after three years for $214,000. Using the setter requires a $20,000 increase in net working capital. Although it would have no effect on revenues, the setter should save the firm $179,000 per year in before-tax operating costs (excluding depreciation), Rader's marginal tax rate is 40 percent, and its required rate of return is 15 percent. Should the setter be purchased? Do not round intermediate calculations. Round your answer to the nearest cent. Use a minus sign to enter a negative value, if any. The setter should be purchased because the net present value, that is s greater than zero. Rader Railway is determining whether to purchase a new rail setter, which has a base price of $421,000 and would cost another $49,000 to install. The setter will be depreciated according to the MACRS 3-year class of assets, and it would be sold after three years for $214,000. Using the setter requires a $20,000 increase in net working capital. Although it would have no effect on revenues, the setter should save the firm $179,000 per year in before-tax operating costs (excluding depreciation), Rader's marginal tax rate is 40 percent, and its required rate of return is 15 percent. Should the setter be purchased? Do not round intermediate calculations. Round your answer to the nearest cent. Use a minus sign to enter a negative value, if any. The setter should be purchased because the net present value, that is s greater than zero.

Answer rating: 100% (QA)

To determine whether the setter should be purchased we need to calculate the net present value NPV o... View the full answer