Wexford Corporation Is Considering the Acquisition of a New Machine

Wexford Corporation is considering the acquisition of a new machine that costs $350,000.The machine is expected to have a four-year service life and will produce annual savings in cash operating costs of $100,000.Wexford uses the optional straight-line method of depreciation and depreciates the asset over its four-year service life.The company is subject to a 30% income tax rate,has an after-tax hurdle rate of 12%,and rounds calculations to the nearest dollar.
Required:
A.Annual cash operating costs: $(100,000)* 0.7 = $(70,000)
Depreciation tax savings:
Year 1: $43,750 x .3 = 13,125
Year 2: $87,500 x .3 = 26,250
Year 3: $87,500 x .3 = 26,250
Year 4: $87,500 x .3 = 26,250
Year 5: $43,750 x .3 = 13,125
A.Determine the annual after-tax cash flows that result from acquisition of the machine.
B.

The machine is not considered an attractive investment because it has a negative net present value.
B.Calculate the machine's Net present value.Is the machine an attractive investment? Why?