Explore BrainMass
Share

# Project Evaluation Kinky Copies

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

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 can actually be sold in 5 years at \$30,000. The machine will save \$20,000 a year in labor costs but will require an increase in working captial, mainly paper supplies, of \$10,000. The firm's marginal tax rate is 35 percent, and the discount rate is 8 percent. Should Kinky's buy this machine?

#### Solution Preview

The initial investment is \$100,000 for the copier plus \$10,000 in working capital, for a total outlay of \$110,000.

Depreciation expense = (\$100,000 - \$20,000)/5 = \$16,000 per year

The project saves \$20,000 in annual labor costs, so the net operating cash flow (including ...

#### Solution Summary

This posting provides a detailed response to the given Project Evaluation problem.

\$2.19