The Dawn Co. is considering the purchase of new machines in order to expand their business. The machines have a useful life of five years. The required rate of return for the expansion is 17%. The company's tax rate is 40%.
Purchase price of new machines $450,000
Installation charges $ 50,000
Building Modification, necessary
to adopt to the new equipment $ 35,000
Increased revenues from expansion $200,000/year before taxes
Salvage value at the end of the fifth year $175,000