Isaac, Inc. is thinking about purchasing a new machine. The new machine would cost $150,000 with an additional $30,000 for delivery of the machine. The machine will have a life of 5 years and will be depreciated using the straight line method. The machine can be sold for $25,000 at the end of its life. This machine is expected to produce cost savings of $35,000 the first two years and $50,000 per year after. It will take a $10,000 adjustment to net working capital if the machine is purchased. The company has a required return of 7% and is in the 35% tax bracket.

Required:

Calculate the NPV of the project and determine if the company should purchase the machine.

Answer rating: 100% (QA)

Year 1 2 3 4 5 Cost Savings 35000 35000 50000 50000 50000 Less Depreciation 30000 30000 30000 30000 ... View the full answer