Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $425,000 is estimated to result in $169,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $69,000. The press also requires an initial investment in spare parts inventory of $28,000, along with an additional $3,500 in inventory for each succeeding year of the project. The shop's tax rate is 23 percent and its discount rate is 10 percent. (MACRS schedule) Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV Should the company buy and install the machine press? Yes O No
Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $425,000 is estimated to result in $169,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $69,000. The press also requires an initial investment in spare parts inventory of $28,000, along with an additional $3,500 in inventory for each succeeding year of the project. The shop's tax rate is 23 percent and its discount rate is 10 percent. (MACRS schedule) Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV Should the company buy and install the machine press? 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
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Transcribed Image Text:Masters Machine Shop is considering a four-year project to improve its production
efficiency. Buying a new machine press for $425,000 is estimated to result in $169,000
in annual pretax cost savings. The press falls in the MACRS five-year class, and it will
have a salvage value at the end of the project of $69,000. The press also requires an
initial investment in spare parts inventory of $28,000, along with an additional $3,500 in
inventory for each succeeding year of the project. The shop's tax rate is 23 percent and
its discount rate is 10 percent. (MACRS schedule)
Calculate the NPV of this project. (Do not round intermediate calculations and round
your answer to 2 decimal places, e.g., 32.16.)
NPV
Should the company buy and install the machine press?
Yes
O No
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