The Harris Company is evaluating the proposed acquisition of a new milling machine. The machine's base price

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The Harris Company is evaluating the proposed acquisition of a new milling machine. The machine's base price is $108,000, and it would cost another $12,500 to modify it for special use by your firm. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000.
The machine would require an increase in net operating working capital (inventory) of $5,500. The milling machine would have no effect on revenues, but it is expected to save the firm $44,000 per year in before-tax operating costs, mainly labor.
Harris's marginal tax rate is 35 percent.
What is the net cost of the machine for capital budgeting purposes? (That is, what is the Year 0 net cash flow?)
Capital Budgeting
Capital budgeting is a practice or method of analyzing investment decisions in capital expenditure, which is incurred at a point of time but benefits are yielded in future usually after one year or more, and incurred to obtain or improve the...
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Fundamentals of Financial Management

ISBN: 978-0324272055

10th edition

Authors: Eugene F. Brigham, Joel F. Houston

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