A manufacturer of fabricated metal products has acquired a new plasma table for $37,000. It is projected that the acquisition of this equipment will increase revenue by $10,000 per year. Operating costs for the machine will average $2,600 per year. The machine will be depreciated using the MACRS method, with a recovery period of 7 years. The company uses an after-tax MARR rate of 10% and has an effective tax rate of 30%.
Now, suppose that the duration of the project is six years and that an estimate of the value of the equipment cannot be obtained from the marketplace.
1. Find the before-tax PW, IRR and discounted payback period (before-tax MARR = 10%). Can the acquisition be economically justified? Why or why not?