The oviedo company is considering the purchase of a new machine to replace an obsolete one. the machine being used for the operation has a book value and a market value of zero. however, the machine is in good working order and will last at least another 10 years. the proposed replacement machine will perform the operation so much more efficiently that oviedo’s engineers estimate that it will produce after-tax cash flows (labor savings) of $8,000 per year. the after-tax cost of the new machine is $45,000, and its economic life is estimated to be 10 years. it has zero salvage value. the firm’s wacc is 10%, and its marginal tax rate is 25%. should oviedo buy the new machine?

Fanning company is considering the addition of a new product to its cosmetics line. the company has three distinctly different options: a skin cream, a bath oil, or a hair coloring gel. relevant information and budgeted annual income statements for each of the products follow. skin cream bath oil color gel budgeted sales in units (a) 110,000 190,000 70,000 expected sales price (b) $8 $4 $11 variable costs per unit (c) $2 $2 $7 income statements sales revenue (a × b) $880,000 $760,000 $770,000 variable costs (a × c) (220,000) (380,000) (490,000) contribution margin 660,000 380,000 280,000 fixed costs (432,000) (240,000) (76,000) net income $228,000 $140,000 $204,000 required: (a) determine the margin of safety as a percentage for each product. (b) prepare revised income statements for each product, assuming a 20 percent increase in the budgeted sales volume. (c) for each product, determine the percentage change in net income that results from the 20 percent increase in sales. (d) assuming that management is pessimistic and risk averse, which product should the company add to its cosmetics line? (e) assuming that management is optimistic and risk aggressive, which product should the company add to its cosmetics line?