Question: Stanton Inc. is considering the purchase of a new machine that will reduce manufacturing costs by $5,000 per year and increase earnings before depreciation and

Stanton Inc. is considering the purchase of a new machine that will reduce manufacturing costs by $5,000 per year and increase earnings before depreciation and taxes by $6,000 per year. For simplicity, assume that the machine will depreciate on a straight-line basis over 5 years. The company expects to sell the machine at the end of its five-year useful life for $10,000 before taxes. Stanton's marginal tax rate is 40 percent and he uses a required rate of return of 9 percent to evaluate projects of this type. If the cost of the machine is $40,000, what is the NPV of the project?

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