Caradoc Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $410,000 is estimated to result in $150,000 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 $55,000. The press also requires an initial investment in spare parts inventory of $20,000, along with an additional $3,100 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? O Yes O No

Caradoc Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $410,000 is estimated to result in $150,000 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 $55,000. The press also requires an initial investment in spare parts inventory of $20,000, along with an additional $3,100 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? O Yes O No

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

See similar textbooks

Similar questions

Galactic is contemplating the purchase of a new $570,000 computer-based order entry system. The system will be depreciated using the MACRS 5-year depreciation schedule. It will be worth $70,000 at the end of the project in 6 years. You will save $40,000 before taxes per year in order processing costs, and you will be able to reduce net working capital by $30,000. You will also increase sales by $100,000 per year for the first year and this number will increase by 3% per year. If the tax rate is 30 percent, and the required rate of return is 10%, what is the NPV of this project?
Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $401,000 is estimated to result in $147,000 in annual pretax cost savings. The press qualifies for 100 percent bonus depreciation and it will have a salvage value at the end of the project of $48,000. The press also requires an initial investment in spare parts inventory of $15,300, along with an additional $2,300 in inventory for each succeeding year of the project. The shop's tax rate is 23 percent and its discount rate is 10 percent. Calculate the project's NPV. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV S 69,414.39
Concose Park Department is considering a new capital investment. The cost of the machine is $230,000. The annual cost savings if the new machine is acquired will be $105,000. The machine will have a 5-year life and the terminal disposal value is expected to be $38,000. There are no tax consequences related to this decision. If Concose Park Department has a required rate of return of 16%, which of the following is closest to the present value of the project? A. $131,858 B. $145,662 C. $31,892 D. $113,770
Caradoc Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $410,000 is estimated to result in $150,000 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 $55,000. The press also requires an initial investment in spare parts inventory of $20,000, along with an additional $3,100 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.
Apricot Computers is considering replacing its material handling system and either purchasing or leasing a new system. The old system has an annual operating and maintenance cost of $35,000, a remaining life of 8 years, and an estimated salvage value of $5,100 at that time. A new system can be purchased for $286,000; it will be worth $26,000 in 8 years; and it will have annual operating and maintenance costs of $18,000/year . If the new system is purchased, the old system can be traded in for $18,000. Leasing a new system will cost $27,000/year , payable at the beginning of the year, plus operating costs of $9,100/year , payable at the end of the year. If the new system is leased, the old system will be sold for $10,000. MARR is 14%. Compare the annual worths of keeping the old system, buying a new system, and leasing a new system based upon a planning horizon of 8 years. What is the EUAC of the best option using the cash flow approach?
Bridgeport Industries is considering the purchase of new equipment costing $1,280,000 to replace existing equipment that will be sold for $194,000. The new equipment is expected to have a $220,000 salvage value at the end of its 5-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 32,800 units annually at a sales price of $29 per unit. Those units will have a variable cost of $15 per unit. The company will also incur an additional $86,000 in annual fixed costs. Identify the amount and timing of all cash flows related to the acquisition of the new equipment. (Enter negative amounts using a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Cash Flow Timing Amount Purchase of new equipment $4 Salvage of old equipment Sales revenue Variable costs Additional fixed costs Salvage of new equipment >
Caradoc Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $421,000 is estimated to result in $161,000 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 $56,100. The press also requires an initial investment in spare parts inventory of $31,000, along with an additional $4,200 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. Round the final answer to 2 decimal places
Lumberjack Power, operator of a nuclear power plant, is planning to replace its current equipment with some that is more environmentally friendly. The old equipment has annual operating expenses of $6750 and can be kept for 8 more years. The equipment will have a salvage value of $4000, if sold 8 years from now, and has a current market value of $24,000, if it is sold now. The new equipment has an initial cost of $62,000 and has estimated annual operating expenses of $6250 each year. The estimated market value of the new equipment is $19,000 after 8 years of operation. If the company's MARR is 16% per year, should the equipment be replaced? Use a study period of 8 years and the present worth method.
A firm is considering purchasing a machine that costs $56000. It will be used for six years, and the salvage value at that time is expected to be zero. The machine will save $45000 per year in labor, but it will incur $9000 in operating and maintenance costs each year. The machine will be depreciated according to five-year MACRS. The firm's tax rate is 40%, and its after-tax MARR is 14%. Should the machine be purchased?
Concose Park Department is considering a new capital investment. The cost of the machine is $280,000. The annual cost savings if the new machine is acquired will be $165,000. The machine will have a 3-year life and the terminal disposal value is expected to be $35,000. There are no tax consequences related to this decision. If Concose Park Department has a required rate of return of 14%, what is the present value of the project?
Midwest Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $101,000 with a $9,000 residual value and a ten-year life. The equipment will replace one employee who has an average wage of $21,230 per year. In addition, the equipment will have operating and energy costs of $4,880 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to the nearest whole percent
Caradoc Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $424,000 is estimated to result in $164,000 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 $56,400. The press also requires an initial investment in spare parts inventory of $34,000, along with an additional $4,500 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

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS