1) Duff Beer, Inc. is evaluating the acquisition of a new machine. The machine will cost $200,000 and it would cost another $30,000 to modify it for special use by the company. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $50,000. The machine requires an increase in net working capital of $10,000. The machine is expected to save the firm $120,000 per year in operating expenses, mainly labor. The company’s tax rate is 40%.
What is the NPV for the proposed acquisition if the discount rate is 12%? Should Duff Beer, Inc. purchase the new machine?