Ilana Industries Inc. needs a new lathe. It can buy a new high-speed lathe for $1.2 million. The lathe will cost $37,000 per year to run, but it will save the firm $136,000 in labor costs and will be useful for 10 years. Suppose that for tax purposes, the lathe is entitled to 100% bonus depreciation. At the end of the 10 years, the lathe can be sold for $210,000. The discount rate is 8%, and the corporate tax rate is 21%. What is the NPV of buying the new lathe?
Ilana Industries Inc. needs a new lathe. It can buy a new high-speed lathe for $1.2 million. The lathe will cost $37,000 per year to run, but it will save the firm $136,000 in labor costs and will be useful for 10 years. Suppose that for tax purposes, the lathe is entitled to 100% bonus depreciation. At the end of the 10 years, the lathe can be sold for $210,000. The discount rate is 8%, and the corporate tax rate is 21%. What is the NPV of buying the new lathe?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 3P
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Ilana Industries Inc. needs a new lathe. It can buy a new high-speed lathe for $1.2 million. The lathe will cost $37,000 per year to run, but it will save the firm $136,000 in labor costs and will be useful for 10 years. Suppose that for tax purposes, the lathe is entitled to 100% bonus
*This is finance (using excel and NPV calculations) not accounting*
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