Your company makes $10M revenue of year, has $3M in COGS, $2M in S&A, and a...

Your company makes $10M revenue of year, has $3M in COGS, $2M in S&A, and a 40% tax rate. Marketing costs are $500,000 and are included in SG&A

You are considering buying a machine worth $1M to produce more product. It will lead to $300,000 of revenues in the first year, and will increase each year by 20% over five years. The CCA rate used to depreciate the asset is 20% per year. The equipment will have no salvage value after 5 years. A discount rate of 10% will be assigned. Goods produced will have the same gross profit of the company. Additional marketing costs will be needed for the new products produced from the equipment, estimated to be 10% of revenue. You would be replacing an asset with a salvage value of $50,000 after considering leftover tax shield for that asset.

Should you invest in this equipment?

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ekkarill92 answered 5 months ago

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