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The Marcus Company is evaluating the proposed acquisition of a new machine. The machine's base...

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Finance

The Marcus Company is evaluating the proposed acquisition of a new machine. The machine's base price is $350,000, and it would cost another $125,000 to modify it for special use. The machine falls into the MACRS 3-year class, and it would be sold after 4 years for $40,000. The machine would require an increase in net working capital of $20,000. The machine would have no effect on revenues, but it is expected to save the firm $170,000 per year for 4 years in before-tax operating costs. . The company's marginal tax rate is 30 percent and its cost of capital is 10 percent.

Calculate NPV. Should the machinery be purchased? Why or why not?

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