ABC INC is considering the purchase of a $65,000 new machine that will increase revenues by 25,000 annually with an annual increase in costs of $5,000. The new machine will also enable the firm to immediately (now) reduce the need for inventory by $20,000 when the machine is installed. ABC's marginal tax rate is 40% and the cost of capital is 12%. ABC will depreciate the machine to $10,000 using the 5-yr straight-line method and expects to be able to sell the machine for $17,000 at the end of year 5. What are the inflows and outflows? Write out the ACFS to determine what the NPV is for the project. Then, explain whether we should accept or reject the project, and justify the answer. Must show all steps.

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CALCULATIONS Annual Cash Flows Increase in revenues 25000 Increase in costs 5000 Reduction in invent... View the full answer