28 Jul THE BOUNDRY IS LOOKING TO PURCHASE A NEW MACHINE THAT HAS A PURCHASE
The Boundry is looking to purchase a new machine that has a purchase price of $1million, an MACRS class life of 5 years & an estimated
sale price of $100,000. The new machine would be sold at the end of its useful life (at the end of year 3). The new machine is expected to decrease pre-tax
Operating costs by $300,000 & increase revenues by $100,000 per year. The company will incur a one time increase in accounts receivable of $100,000 and
inventory of $50,000, both which will be reduced at the end of the project. The Company’s tax rate is 40% and its company’s View complete question » The Boundry is looking to purchase a new machine that has a purchase price of $1million, an MACRS class life of 5 years & an estimated
sale price of $100,000. The new machine would be sold at the end of its useful life (at the end of year 3). The new machine is expected to decrease pre-tax
Operating costs by $300,000 & increase revenues by $100,000 per year. The company will incur a one time increase in accounts receivable of $100,000 and
inventory of $50,000, both which will be reduced at the end of the project. The Company’s tax rate is 40% and its company’s required return is 10% Question: Should the Boundry buy the machine? (Show calculations please) MACRS schedule for 5-year class life: Year 1 2 3 4 5 6 20% 32% 19% 12% 11% 6% (a) Calculate the tax savings from depreciation Depreciation Expense Year 1 Year 2 Year 3 Depreciation Expense ________ ________ ________ Tax Savings ________ ________ ________ b) Cash Flows Year 0 Year 1 Year 2 Year 3 Investment _________ After tax NOI ________ _______ _______ Tax Savings* ________ ________ ________ (from part a) Net Working Capital _______ ________ Net Salvage New Machine ________ Net Cash Flow _______ ________ _______ _______ c) NPV of Project:__________ d) Purchase/Do Not Purchase :______________
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