CSM Machine Shop is considering a four-year project to improve itsproduction efficiency. Buying a new machine press for $421,000 isestimated to result in $157,000 in annual pretax cost savings. Thepress is eligible for 100 percent bonus depreciation and it will have asalvage value at the end of the project of $58,000. The press alsorequires an initial investment in spare parts inventory of $16,300, alongwith an additional $3,300 in inventory for each succeeding year of theproject. The shop's tax rate is 23 percent and its discount rate is 10percent. Calculate the project's NPV. (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g., 32.16.)CNPV

Net Present Value is used to evaluate the investment and financing decisions that involve cash flows…

Answered: CSM Machine Shop is considering a…

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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Kolby’s Korndogs is looking at a new sausage system with an installed cost of $680,000. The asset qualifies for 100 percent bonus depreciation and can be scrapped for $90,000 at the end of the project’s 5-year life. The sausage system will save the firm $193,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $45,000. If the tax rate is 25 percent and the discount rate is 9 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine will be depreciated for 3 years using simplified straight line depreciation. The machine would save the firm $110,000 per year in operating costs. The firm is planning to keep the machine in place for 2 years. At the end of the second year, the machine will be sold for $100,000. Riverview has a cost of capital of 12% and a marginal tax rate of 34%. What is the NPV of the project? $9,555 $19,016 - $9,783 $3,875 $12,155
Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $844,800 is estimated to result in $281,600 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $123,200. The press also requires an initial investment in spare parts inventory of $35,200, along with an additional $5,280 in inventory for each succeeding year of the project. If the shop's tax rate is 25 percent and its discount rate is 12 percent, what is the NPV for this project? Multiple Choice $-924.19 $1,690.87 $-92,906.13 ○ $-970.40 ○ $-877.99
Consider the following project of Hand Clapper, Incorporated. The company is considering a four-year project to manufacture clap-command garage door openers. This project requires an initial investment of $14 million that will be depreciated straight- line to zero over the project's life. An initial investment in net working capital of $590,000 is required to support spare parts inventory; this cost is fully recoverable whenever the project ends. The company believes it can generate $11.6 million in pretax revenues with $4.4 million in total pretax operating costs. The tax rate is 21 percent and the discount rate is 11 percent. The market value of the equipment over the life of the project is as follows: Year Market Value (millions) a. 1 $ 11.2 9.1 234 4.9 1.3 Assuming the company operates this project for four years, what is the NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.) b-1. Compute…
Eggz, Incorporated, is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $490,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $84,000 at the end of the project in 5 years. Sales would be $327,000 per year, with annual fixed costs of $60,000 and variable costs equal to 35 percent of sales. The project would require an investment of $51,000 in NWC that would be returned at the end of the project. The tax rate is 23 percent and the required return is 8 percent. Calculate the NPV of this project. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV 348437.32
Caradoc Machine Shop is considering a four-year project to improve itsproduction efficiency. Buying a new machine press for $410,000 isestimated to result in $150,000 in annual pre-tax cost savings. The pressfalls into Class 8 for CCA purposes (CCA rate of 20% per year), and it willhave a salvage value at the end of the project of $55,000. The press alsorequires an initial investment in spare parts inventory of $20,000, alongwith an additional $3,100 in inventory for each succeeding year of theproject. If the shop’s tax rate is 35% and its discount rate is 9%.Calculate the NPV of this project. (Do not round your intermediatecalculations. Round the final answer to 2 decimal places. Omit $ sign inyour response.)NPV $ Should the company buy and install the machine press?
A Funiture Factory is considering buying a new automated planing machine for a cost of $80,250. This price includes a complete guarantee of the maintenance costs for the first two years, and it covers a good proportion of the maintenance costs for years 3 and 4. The company’s portion of the maintenance cost is estimated to be $1,000 in year 3 and $3,000 in year 4. Depreciation on the capital cost would be 7% per year. Determine the Economic Life and EAC* of the new machine assuming the MARR is 6.5% and that there will be an installation cost of $2,800. PLEASE PLEASE SHOW FULL DETAILED STEPS
Looner Industries is currently analyzing the purchase of a new machine that costs $158,000 and requires $19,900 in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $29,600 to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a five-year recovery period (see the table attached for the applicable depreciation percentages) and expects to sell the machine to net $10,300 before taxes at the end of its usable life. The firm is subject to a 21% tax rate c. Assuming a five-year usable life, calculate the terminal cash flow if the machine were sold to net (1) $8,895 or (2) $169,900 (before taxes) at the end of five years. d. Discuss the effect of sale price on terminal cash flow using your findings in part c.
Culver Industries is considering the purchase of new equipment costing $1,500,000 to replace existing equipment that will be sold for $100,000. The new equipment is expected to have a $210,000 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 25,000 units annually at a sales price of $44 per unit. Those units will have a variable cost of $22 per unit. The company will also incur an additional $80,000 in annual fixed costs.Click here to view the factor table.(a) Calculate the net present value of the proposed equipment purchase. Assume that Culver uses a 10% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971. Enter negative amount using a negative sign preceding the number e.g. -59,992 or parentheses e.g. (59,992).) Net present value $enter the net present value in dollars…
Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $397,000 is estimated to result in $145,000 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 $46,000. The press also requires an initial investment in spare parts inventory of $15,100, along with an additional $2,100 in inventory for each succeeding year of the project. The shop's tax rate is 21 percent and its discount rate is 8 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
Purple Haze Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $526,528 is estimated to result in some amount of annual pretax cost savings. The press will have an aftertax salvage value at the end of the project of $86,879. The OCFS of the project during the 4 years are $170,654, $199,481, $175,232 and $169,873, respectively. The press also requires an initial investment in spare parts inventory of $23, 482, along with an additional $1,631 in inventory for each succeeding year of the project. The shop's discount rate is 6 percent. What is the NPV for this project?
Eggz, Incorporated, is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $455,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $63,000 at the end of the project in five years. Sales would be $347,000 per year, with annual fixed costs of $53,000 and variable costs equal to 40 percent of sales. The project would require an investment of $37,000 in NWC that would be returned at the end of the project. The tax rate is 21 percent and the required return is 13 percent. Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. $ 409,610.75 NPV

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