First American is considering buying a new machine to increase production. It will cost $2,700. Shipping will be $300. It has a three-year class life. At the end of one year they plan to sell the machine for $2,000. The new machine will allow FA to increase revenues by $1,700 each year but expenses will increase by $450 each year. If the new machine is purchased, inventory will decrease by $800 and accounts payable will increase by 250.
Straight-line depreciation will be used. FA's marginal tax rate is 34% and its cost of capital is 8%.
Determine if you would accept or reject the project.