Problem:
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose machine. The machine's total price including installation and delivery is $70,000. The machine falls into the four-year class using straight line depreciation method, and it will be sold after four years for $0. The use of this new machine will bring revenue of $25,000 annually for 4 years, and will have annual maintenance expense of $5,000. The firm's marginal tax rate is 40 percent and the required rate of return is 10%. (Please show your work)
Required:
Question 1: What is the initial investment?
Question 2: What is the Cash Flow at year 1?
Question 3: What is the Cash Flow at year 4?
Question 4: Is this a good investment?
Note: Please answer in proper manner and show all computations