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 can actually be sold in 5 years at $30,000. The machine will save $20,000 a year in labor costs but will require an increase in working captial, mainly paper supplies, of $10,000. The firm's marginal tax rate is 35 percent, and the discount rate is 8 percent. Should Kinky's buy this machine?