The firms marginal tax rate is 40 percent and its required


Otter Outside Gear must decide whether to replace a 10 year old packing machine with a new one that cost $153,800. Replacing the old machine will increase net operating income (excluding depreciation) from $70,000 to $110,000 and it will decrease net working capital by $18,000. The new machine falls in the MACRS 5-year class. If the new machine is purchased, it will be sold in six years for $25,000; whereas, if the old machine is kept, it will have no salvage value in six years. The old machine has a current market value of $10,860, and although its current book value is $8,000, in one year the old macine's book value will be zero ($0). The firm's marginal tax rate is 40 percent, and its required rate of return is 12 percent. Should the new packing machine be purchased?

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Business Management: The firms marginal tax rate is 40 percent and its required
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