Your company makes $10M revenue of year, has $3M in COGS, $2M
in S&A, and a...
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Accounting
Your company makes $10M revenue of year, has $3M in COGS, $2Min S&A, and a 40% tax rate. Marketing costs are $500,000 andare included in SG&A
You are considering buying a machine worth $1M to produce moreproduct. It will lead to $300,000 of revenues in the first year,and will increase each year by 20% over five years. The CCA rateused to depreciate the asset is 20% per year. The equipment willhave no salvage value after 5 years. A discount rate of 10% will beassigned. Goods produced will have the same gross profit of thecompany. Additional marketing costs will be needed for the newproducts produced from the equipment, estimated to be 10% ofrevenue. You would be replacing an asset with a salvage value of$50,000 after considering leftover tax shield for that asset.
Should you invest in this equipment?
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