[msheppard]

Proposed new asset (machine) has a purchase price of $50,000, with $3,000 in installation costs. The asset will depreciate over five years, using the straight-line method. The new asset is expected to increase sales by $17,000, and non-depreciation expenses by $2,000 annually over its 5 year life. Due to the increase in sales, we expect an increase of $1,500 in working capital during the asset's life, and the expectation is to be able to sell the asset for $6,000 at the end five years.

The existing asset (machine) was originally purchased three years ago for $25,000, has 5 years remaining, and is depreciating using the straight-line method. The expected salvage value at the end of the asset's life (five years from now) is $5,000. The sale price of the existing asset is $20,000, and its current book value is $15,625.

The marginal tax rate is 34%, and the required rate of return is 12%.