Problem
You need to evaluate the purchase of a new molding machine. The equipment's basic price is $104,024, and it would cost another $11,558 to modify it for special use by your firm. The molding machine, which falls into the MACRS 3-year class, would be sold after 3 years for $41,610. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. Use of the equipment would require an increase in net working capital (spare parts inventory) of $6,117. The machine would have no effect on revenues, but it is expected to save the firm $44,975 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 21.0% and its cost of capital is 14.0%. How much is the salvage value cash flow for the machinery at the end of project's life?