4. builtrite d is considering the purchase of a new machine for $500,000 which would require a $5000 installation charge. employees would need to go through a brief training session to operate the machine properly which would cost $25,000. in addition, an increase in net working capital of $30,000 would be required. the machine has an expected life of 10 years and due to efficiencies, labor costs are expected to decrease $150,000 annually (before depreciation and taxes). assume straight-line depreciation, a 34% marginal tax rate and a cost of capital of 15%. should builtrite d purchase the machine?

Builtrite D should purchase the machine

Step-by-step explanation:

Cash outflow in year zero = $ 500,000 + $ 25,000 ( training cost ) + $ 30,000 ( Net working capital)

Cash outflow in year zero = $ 555,000

Terminal cash flow in year 10  = $ 150,000 + $ 30,000 ( NWC)

Terminal cash flow in year 10  = $ 180,000

Operating cash flow per year = [ Savings - expenses - depreciation ] X ( 1 - tax rate) + depreciation

Net present value =

The Net present value of purchasing the machine = $32,071.42

Builtrite D should purchase the machine

6mm^3 or .6cm^3

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6     6   6

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