The Katrina Corp is considering the purchase of a new machine that produces hurricane proof windows in January 2010.The window machine will cost $300,000 and Katrina's management expects it to last 6 years.At the end of six years the new machine is expected to have a zero book value but could be sold for $25,000.Depreciation each year on the window machine will be $50,000 and Katrina's tax rate is 30%.The Pretax cash flows expected from the machine are as follows:
Required:
(A.)Calculate the net present of the new machine if the cost of capital is 15%.
(B.)Indicate whether or not Katrina should buy the new machine and explain the basis for your decision (do not use positive or negative NPV as an explanation):

Question

The Katrina Corp is considering the purchase of a new machine that produces hurricane proof windows in January 2010.The window machine will cost $300,000 and Katrina's management expects it to last 6 years.At the end of six years the new machine is expected to have a zero book value but could be sold for $25,000.Depreciation each year on the window machine will be $50,000 and Katrina's tax rate is 30%.The Pretax cash flows expected from the machine are as follows:
  Required:
(A.)Calculate the net present of the new machine if the cost of capital is 15%.
(B.)Indicate whether or not Katrina should buy the new machine and explain the basis for your decision (do not use positive or negative NPV as an explanation):

Quizplus · Accepted Answer

The Answer of The Katrina Corp is considering the purchase of a new machine that produces hurricane proof windows in January 2010.The window machine will cost $300,000 and Katrina's management expects it to last 6 years.At the end of six years the new machine is expected to have a zero book value but could be sold for $25,000.Depreciation each year on the window machine will be $50,000 and Katrina's tax rate is 30%.The Pretax cash flows expected from the machine are as follows:
  Required:
(A.)Calculate the net present of the new machine if the cost of capital is 15%.
(B.)Indicate whether or not Katrina should buy the new machine and explain the basis for your decision (do not use positive or negative NPV as an explanation):

The Katrina Corp Is Considering the Purchase of a New