THE APPRAISAL OF MACHINERY INVESTMENT

The present value model is applied to investment decisions in new machinery with particular emphasis on the incorporation of taxation and inflation effects. In order to produce a more practically applicable version of the model an equivalent annuity form is derived in which post-tax net present value is converted into a corresponding annual cost in real terms. The effects of inflation, tax and interest rates on this annual cost are explored. Possible modifications to the investment criterion, in the context of finance constraints at purchase or subsequent replacement, are discussed.