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Kinky Copies Project Evaluation

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Kinky Copies may buy a high-volume copier. The machine costs $100,000 and will be depreciated straight-line over 5 years to a salvage value of $20,000. Kinky anticipates that the machine actually can be sold in 5 years for $30,000. The machine will save $20,000 a year in labor costs but will require an increase in working capital, mainly paper supplies, of $10,000. The firm's marginal tax rate is 35 percent, and the discount rate is 8 percent.
Should Kinky buy the machine?

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Please see the attached file.

Discount Rate 8%
Tax Rate 35%
Initial Cost $100,000.00
Salvage Value $20,000.00
Salvage selling Price $30,000.00
Life 5
Labor Savings $20,000.00
Additional ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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