Boyertown Industrial Tools is considering a three-year project to improve its production efficiency. Buying a new machine press for $611,000 is estimated to result in $193,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $162,000. The press also requires an initial investment in spare parts inventory of $19,000, along with an additional $2,000 in inventory for each succeeding year of the project. If the tax rate is 35 percent and the discount rate is 12 percent, should the company buy and install the machine press? Why or why not? Table 9.7 Modified ACRS depreciation allowances Yes; the NPV is $51,613 Yes; the NPV is $45,607 No; the NPV is -$22,311 No; the NPV is -$52,918 No; the NPV is -$74,945
Boyertown Industrial Tools is considering a three-year project to improve its production efficiency. Buying a new machine press for $611,000 is estimated to result in $193,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $162,000. The press also requires an initial investment in spare parts inventory of $19,000, along with an additional $2,000 in inventory for each succeeding year of the project. If the tax rate is 35 percent and the discount rate is 12 percent, should the company buy and install the machine press? Why or why not? Table 9.7 Modified ACRS depreciation allowances Yes; the NPV is $51,613 Yes; the NPV is $45,607 No; the NPV is -$22,311 No; the NPV is -$52,918 No; the NPV is -$74,945
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Boyertown Industrial Tools is considering a three-year project to improve its production efficiency. Buying a new machine press for $611,000 is estimated to result in $193,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $162,000. The press also requires an initial investment in spare parts inventory of $19,000, along with an additional $2,000 in inventory for each succeeding year of the project. If the tax rate is 35 percent and the discount rate is 12 percent, should the company buy and install the machine press? Why or why not?
Table 9.7 Modified ACRSdepreciation allowancesYes; the NPV is $51,613Yes; the NPV is $45,607No; the NPV is -$22,311No; the NPV is -$52,918No; the NPV is -$74,945
Transcribed Image Text:Property Class
Year
3-Year
5-Year
7-Year
1
33.33%
20.00%
14.29%
2
44.45
32.00
24.49
3
14.81
19.20
17.49
4
7.41
11.52
12.49
11,52
8.93
6
5.76
8.92
8.93
8.
4.46
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