question archive our company is considering a new production system that will initially cost $5 million

our company is considering a new production system that will initially cost $5 million

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our company is considering a new production system that will initially

cost $5 million. It will save $750,000 a year in inventory and receivables management costs. The system will be used for 10 years and then will be sold for its salvage value, estimated at $1,000,000 at that time. The CCA rate for the production system is of 25%. Net working capital will be required of 10% of the initial cost of the equipment. The marginal tax rate is 40%. The required return is 10%.  Would you recommend the company purchase the new machine? Show calculations.

 

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