T-Shirt By Design is considering the purchase of a new printing press to be used...
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T-Shirt By Design is considering the purchase of a new printing press to be used over the next three years. The press has a base price of $900,000. The machine has a fi ve year useful life and the firm plans to depreciate the machine using straight line depreciation over the useful life. The press would require an increase in working capital (mainly t-shirts) of $16,000. The press is expected to save the firm 400,000 in before tax operating costs each year and T-Shirt By Design's tax rate and WACC are 35% and 12%, respectively. If T-Shirt By Design plans to sell the machine at the end of the project (i.e. end of year three), at what price must they sell the machine to make them willing to pursue the project? That is, what is the break-even sale price of the equipment?
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