Disraeli Gears Inc. manufactures latke-shaped gears. The company is considering the purchase of a new machine press for $566,400. The press has a four-your life and is estimated to result in $188,800 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 $82,600. The press also requires an initial investment of $23,600 in spare parts for inventory. An additional $3,540 in inventory will be required for each succeeding year of the project. All investments in Inventory will be recovered at the end of the project. If the shop's tax rate is 35 percent and its discount rate is 17 percent, what is the NPV for this project? (Do not round your intermediate calculations.) HINT: Calculate the depreciation for each year and use it to get the after tax-salvage value. Next, calculate OCF using the annual depreciation and then construct CFFA for each year. Now discount all cash flows to get the NPV
Disraeli Gears Inc. manufactures latke-shaped gears. The company is considering the purchase of a new machine press for $566,400. The press has a four-your life and is estimated to result in $188,800 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 $82,600. The press also requires an initial investment of $23,600 in spare parts for inventory. An additional $3,540 in inventory will be required for each succeeding year of the project. All investments in Inventory will be recovered at the end of the project. If the shop's tax rate is 35 percent and its discount rate is 17 percent, what is the NPV for this project? (Do not round your intermediate calculations.) HINT: Calculate the depreciation for each year and use it to get the after tax-salvage value. Next, calculate OCF using the annual depreciation and then construct CFFA for each year. Now discount all cash flows to get the NPV
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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Transcribed Image Text:Disraeli Gears Inc. manufactures latke-shaped gears. The company is considering the
purchase of a new machine press for $566,400. The press has a four-your life and is
estimated to result in $188,800 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 $82,600. The press also requires an initial investment of $23,600 in spare
parts for inventory. An additional $3,540 in inventory will be required for each
succeeding year of the project. All investments in Inventory will be recovered at the end
of the project.
If the shop's tax rate is 35 percent and its discount rate is 17 percent, what is the NPV for
this project? (Do not round your intermediate calculations.)
HINT: Calculate the depreciation for each year and use it to get the after tax-salvage
value. Next, calculate OCF using the annual depreciation and then construct CFFA for
each year. Now discount all cash flows to get the NPV
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