A firm is considering purchasing a machinethat costs $65,000. It will be used for six years, andthe salvage value at that time is expected to be zero.The machine will save $35,000 per year in labor, butit will incur $12,000 in operating and maintenancecosts each year. The machine will be depreciatedaccording to five-year MACRS. The firm’s tax rateis 40%, and its after-tax MARR is 15%. Should themachine be purchased?
A firm is considering purchasing a machinethat costs $65,000. It will be used for six years, andthe salvage value at that time is expected to be zero.The machine will save $35,000 per year in labor, butit will incur $12,000 in operating and maintenancecosts each year. The machine will be depreciatedaccording to five-year MACRS. The firm’s tax rateis 40%, and its after-tax MARR is 15%. Should themachine be purchased?
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter21: Costs And The Supply Of Goods
Section: Chapter Questions
Problem 17CQ
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Question
A firm is considering purchasing a machine
that costs $65,000. It will be used for six years, and
the salvage value at that time is expected to be zero.
The machine will save $35,000 per year in labor, but
it will incur $12,000 in operating and maintenance
costs each year. The machine will be
according to five-year MACRS. The firm’s tax rate
is 40%, and its after-tax MARR is 15%. Should the
machine be purchased?
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