Question: The PC Company is considering adding a machine to its production line. The machine s base price is Rs 2 0 0 0 0 ,

The PC Company is considering adding a machine to its production line. The machines base price is Rs 20000, and it would cost another Rs 5000 to install it. The machine falls into the depreciation of 3-year class, and it would be sold after 3 years for Rs 4500. The depreciation rates for the first 3 years are 0.2,0.3, and 0.4 of the initial buying prices (including machine base price + installation cost). The machine would require an increase in net working capital (inventory) of Rs.5000 for the whole life of the machine and working capital will not be recovered. The machine will generate a revenue of 14,000 per year in before tax for the next three years. PC Companys marginal tax rate is 35%. Would you like to buy the machine?

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