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Unformatted text preview: be today ? 2. Your Company is deciding whether to buy a new machine . The machine costs $ 3 . 5 million now and requires maintenance costs of $ 350 , 000 at the end of each year during its economic life of five years . The revenues will increase by $ 1 , 300 , 000 each year . At the end of the five years , the machine will have a salvage value of $ 800 , 000 . It will be depreciated using the 5-year class MACRS depreciation rates of 20 % , 32 % , 19 . 2 % , 11 . 52 % , and 11 . 52 % , respectively , over its economic life . The corporate tax rate is 34 percent and the appropriate discount rate is 11 percent . The company is assumed to earn sufficient revenues to generate tax shields from depreciation . Estimate the NPV of the purchase decision ....
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This note was uploaded on 05/23/2011 for the course ECON 402 taught by Professor Kanner during the Spring '11 term at DePaul.
- Spring '11