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The firm depreciates the machine under MACRS using a 5-year recovery period.
Once removal and clenaup costs are taken into consideration, the expected net selling price for the present machine will be $70
Damon can buy a new machine for a net price of $160,000 (including installation costs of $15,000).
The proposed machine will be depreciated under MACRS using a 5-year recovery period.
It the firm acquires the new machine, its workign capital needs will change: Accounts receivable will increase $15,000, inventor
Earnings before depreciation, interest, and taxes (EBDIT) for the present machine are expected to be $95,000 for each of the s
For the proposed machine, the expected EBDIT for each OF THE NEXT 5 YEARS ARE $105,000, $110,000, $120,000, $120,0
The corporate tax rate (T) for the firm is 40%.
See Table 4.2 on page 120 for the applicable MACRS depreciation percentages.
Damon expects to be able to liquidate the proposed machine at the end of its 5-year usable life for $24,000 (after paying remov
The present machine is expected to net $8,000 upon liquidation at the end of the same period.
Damon expects to recover its net working capital investment upon termination of the project.
The firm is subject to a tax rate of 40%.
TO DO
e will increase $15,000, inventory will increase $19,000, and accounts payable will increase $16,000.
Initial investment $ -