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?
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?
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