the silvermist company is considering the purcahse of a new machine to perform more efficient operations. the purchase price is $200,000, including installation. the operation team estimates the new machine will save silvermist $50,000 in labor cost and $3,500 in energy cost, and $1,500 in other direct costs, annually, compared to the existing machine. the team also estimates the proposed equipment's life is 5 years, after which there is a salvage value of $5,000. the after-tax hurdle rate of return for silvermist is 10%. silvermist pays an income tax of 28% and a loss on the sales or disposal of equipment is treated as an ordinary deduction. if silvermist decideds to purchase the new equipment, the current equipment needs to be disposed so that the new one can be installed.
