Your boss provides you with the following specifications for a new machine that she heard about at

Question:

Your boss provides you with the following specifications for a new machine that she heard about at a trade show, which would reduce operating costs in your department each year. She has asked for your evaluation of the opportunity; should the machine be purchased?

The machine will cost $400,000 but is estimated to result in a $150,000 pre-tax annual saving for the next 5 years. It falls into Class 8 for CCA purposes (CCA rate is 20%/year) and it will have a salvage value of $30,000. An initial investment in inventory and accounts receivable of $45,000 will be required, as will $4000 in annual maintenance costs. Your firm’s tax rate is 30% and its required rate of return (discount rate) is 16%.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...