PROJECT EVALUATION
Kinky Copies
Purchase of a high volume copier
Project Evaluation:
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 working capital, mainly paper supplies, of $10,000. The firm's marginal tax rate is 35%, and the discount rate is 8 %. Should Kinky buy the machine?
| Machine Cost |
|
$100,000 |
| Depreciate straight line |
5 years |
| Salvage value |
|
$ 20,000 |
| Sold in 5 years |
|
$ 30,000 |
| Machine saves a year in labor costs |
$ 20,000 |
| Increase in capital - paper supplies |
$ 10,000 |
|
|
|
|
| Marginal tax rate |
|
35% |
| Discount rate |
|
8% |