A firm is considering purchasing a machine that cost $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 operations and maintenance costs each year. The machine will be depreciated according to five-year MACRS. The form’s tax rate is 40%, and it after tax MARR is 15%. The Income statement is shown below and attached.
a Prepare a cash flow statement for this proposal.
b Should the machine be purchased?