In: Accounting
Glamour Gloves is a boxing club for women. The club manufactures all of its own punching bags out of high-quality leather and sand. The company is considering investing in a sand-refining machine to improve the quality of its punching bags.
The machine would cost $152,000 and would last 3 years. Proceeds upon disposal of the machine would be $11,500. The CCA rate is 25%. The expected improvements from the new machine would allow for an increase in membership fees. The CFO expects cash flows from the investment in the first three years to be $94,000, $96,000, and $105,000. The company is subject to a 30% tax rate and has a required rate of return of 17%.
Required
2. Conclude on whether the investment should be made