Topsider Inc. is considering the purchase of a new leather-cutting machine to replace an existing...
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Topsider Inc. is considering the purchase of a new leather-cutting machine to replace an existing machine that has a book value of $4,000 and can be sold for $2,000. The old machine is being depreciated on a straight-line basis, and its estimated market and book values, 3 years from now are $1,000 each. The new machine will reduce operating costs by $6,000 per year. The new machine has a 3-year life, it costs $14,000, and it can be sold for an expected $1,980 at the end of the third year. The new machine would be depreciated over its 3-year life using the MACRS method. Purchase of the new machine would lead to a $1,000 increase in net working capital. Assuming a 40 percent tax rate and a cost of capital of 16 percent, what should we do? Find NPV
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