Hercules Co. is considering getting rid of manual production and using a machine instead. With manual production, there are two workers and one supervisor. Each worker makes $20,750 annually, and supervisors make $43,500 annually. The new machine can be run with just one worker for $55,000 annually. Taxes and fringe benefits are an additional  of all salaries and wages.

 

To purchase the machine will cost $160,000 and has a tax depreciation of 5 years. Straight-line depreciation is used for tax purposes. There would be a service contract for the maintenance at $8,000 a year. The machine has a useful life of 6 years, with no salvage value. The Hercules Company's marginal tax rate is 33%, and its cost of capital is 20%.

 

Calculate the project's payback and NPV. Would you accept or reject the project? Why or why not?

Answer rating: 100% (QA)

To calculate the projects payback and net present value NPV we need to consider the cash flows associated with the manual production and the machine p... View the full answer