The Munsell Color Company is considering the purchase of a new batch polymer-bonding machine for producing its number one line of crayons. Although the machine being considered will not produce any increase in sales revenues, it will result in the before-tax reduction of labor costs by $200,000 per year. The machine has a purchase price of $250,000, and it would cost an additional $10,000 to install the machine. In addition, to operate this machine, inventory must be increased by $15,000. The machine is categorized as 10-year property. After 2 years, it can be sold for $150,000. The tax rate is 34% and the cost of capital is 15%. What is the initial cash flow for the project?
MACRS Depreciation Rates
| Year | 10-Year | 15-Year |
| 1 | 10.00% | 5.00% |
| 2 | 18.00% | 9.50% |
| 3 | 14.40% | 8.55% |
◦ -$250,000
◦ -$260,000
◦ -$265,000
◦ -$275,000
◦ -$285,000
Geometry of carbon bonding
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