Caradoc Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $420,000 is estimated to result in $160,000 in annual pre-tax cost savings. The press falls into Class 8 for CCA purposes (CCA rate of 20% per year), and it will have a salvage value at the end of the project of $56,000. The press also requires an initial investment in spare parts inventory of $30,000, along with an additional $4,100 in inventory for each succeeding year of the project. If the shop's tax rate is 35% and its discount rate is 9%. Calculate the NPV of this project. (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV 2$ Should the company buy and install the machine press? O Yes O No
Caradoc Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $420,000 is estimated to result in $160,000 in annual pre-tax cost savings. The press falls into Class 8 for CCA purposes (CCA rate of 20% per year), and it will have a salvage value at the end of the project of $56,000. The press also requires an initial investment in spare parts inventory of $30,000, along with an additional $4,100 in inventory for each succeeding year of the project. If the shop's tax rate is 35% and its discount rate is 9%. Calculate the NPV of this project. (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV 2$ Should the company buy and install the machine press? O Yes O No
Chapter11: Capital Budgeting And Risk
Section: Chapter Questions
Problem 13P
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Question
![Caradoc Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for
$420,000 is estimated to result in $160,000 in annual pre-tax cost savings. The press falls into Class 8 for CCA purposes (CCA rate of
20% per year), and it will have a salvage value at the end of the project of $56,000. The press also requires an initial investment in
spare parts inventory of $30,000, along with an additional $4,100 in inventory for each succeeding year of the project. If the shop's tax
rate is 35% and its discount rate is 9%.
Calculate the NPV of this project. (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $
sign in your response.)
NPV
$
Should the company buy and install the machine press?
Yes
No](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc1db051b-d336-494d-a38f-0916bed11271%2F2e2e2131-9fad-4f4b-8bea-922bd4d66854%2F4vp4dw5_processed.png&w=3840&q=75)
Transcribed Image Text:Caradoc Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for
$420,000 is estimated to result in $160,000 in annual pre-tax cost savings. The press falls into Class 8 for CCA purposes (CCA rate of
20% per year), and it will have a salvage value at the end of the project of $56,000. The press also requires an initial investment in
spare parts inventory of $30,000, along with an additional $4,100 in inventory for each succeeding year of the project. If the shop's tax
rate is 35% and its discount rate is 9%.
Calculate the NPV of this project. (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $
sign in your response.)
NPV
$
Should the company buy and install the machine press?
Yes
No
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