Problem:
Kinky copies may buy a high-volume copier. The machine costs $100,000 and will be depreciated straight-line over 5 years to a salvage value of $20,000. Kinky anticipates that the machine actually can be sold in 5 years for $30,000. The machine will save $20,000 a year in labor costs but will require an increase in working capital, mainly paper supplies of $10,000. The firm's marginal tax rate is 35 percent and the discount rate is 8 percent. Should Kinky buy the machine?