purchased
a $500,000 machine to manufacture specialty taps for electrical equipment. Nelson expects
to sell all it can manufacture in the next 10 years. To encourage capital investments, the government
has exempted taxes on profits from new investments. This legislation is to be in effect in the foreseeable
future. The machine is expected to have a 10-year useful life with no salvage value. Nelson uses
straight-line depreciation. The net cash inflow is expected to be $120,000 each year for 10 years.
Nelson uses a 12 percent discount rate in evaluating capital investments. Assume, for simplicity, that
MACRS depreciation rules do not apply