Finance Capital budgeting : Recommendation of NPV by ClassOf1


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									              Sub: Finance                                                                     Topic: Capital Budgeting

               Recommendation based on capital budgeting involves calculation of NPV.
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              Interco Machinery, Inc. is evaluating the acquisition of a new production machine. This machine
              will cost $200,000, delivered, and will result in an annual increase in earnings before interest
              and tax of $50,000. This machine has an expected life of 10 years with no salvage value.
              Depreciation is assumed to be straight-line 10 years. To be operated properly this machine will
              require an after tax expenditure of $5,000 to install and another $5,000 after tax for an
              operator training session. Due to its efficiency, this machine will also require an increase of
              $20,000 in inventory. Company projects of this risk class require a rate of return of 10%. The
              company’s marginal tax rate is 34%, and this expenditure will require the borrowing of
              $100,000 from the bank at a 7% interest rate - resulting in additional interest payments of
              $7,000 per year.
              1. What is the project's ini
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