Contemporary Engineering Economics 6th Edition by Chan Park

Exercise 1

A firm is considering purchasing a machine that costs $65,000. It will be used for six years, and the salvage value at that time is expected to be zero. The machine will save $35,000 per year in labor, but it will incur $12,000 in operating and maintenance costs each year. The machine will be depreciated according to five-year MACRS. The firm's tax rate is 40%, and its after-tax MARR is 15%. Should the machine be purchased?