Masters Machine Shop is considering a four-year project to improve its production efficiency.Buying a new machine press for $902,400 is estimated to result in $300,800 in annual pretaxcost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have asalvage value at the end of the project of $131,600. The press also requires an initialinvestment in spare parts inventory of $37,600, along with an additional $5,640 in inventoryfor each succeeding year of the project.If the shop's tax rate is 21 percent and its discount rate is 16 percent, what is the NPV for thisproject?Multiple Choice$-69,008.14$-65,686.09$-153,856.79$-72,458.55$-65,557.74

NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Answered: Masters 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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Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $54,000. It will last 10 years with annual maintenance costs of $1,700 per year. After 10 years the machine can be sold for $5,670. Machine B could be purchased for $45,000. It also will last 10 years and will require maintenance costs of $6,800 in year three, $8,500 in year six, and $10,200 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase?
Cori's Meats is looking at a new sausage system with an installed cost of $505,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $75,000. The sausage system will save the firm $185,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $34,000. If the tax rate is 25 percent and the discount rate is 8 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.) NPV $ 553,988.52
Kolby's Korndogs is looking at a new sausage system with an installed cost of $675,000. The asset qualifies for 100 percent bonus depreciation and can be scrapped for $89,000 at the end of the project's 5-year life. The sausage system will save the firm $191,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $43,000. If the tax rate is 24 percent and the discount rate is 8 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.) NPV
Alliance Manufacturing Company is considering the purchase of a new automated drill press to replace an older one. The machine now in operation has a book value of zero and a salvage value of zero. However, it is in good working condition with an expected life of 10 additional years. The new drill press is more efficient than the existing one and, if installed, will provide an estimated cost savings (in labor, materials, and maintenance) of $6,000 per year. The new machine costs $25,000 delivered and installed. It has an estimated useful life of 10 years and a salvage value of $1,000 at the end of this period. The firm’s cost of capital is 14 percent, and its marginal income tax rate is 40 percent. The firm uses the straight-line depreciation method. Complete the following table to compute the net present value (NPV) of the investment. (Hint: Remember that, in Year 10, Alliances also receives the salvage value of the machine.) Year Cash Flow PV Interest Factor at 14%…
XYZ Co. is considering the purchase of a new machine. The machine will cost $250,000 and requires installation costs of $25,000. The existing machine can be sold currently for $25,070. It was purchased three years ago for $83,000 and depreciated using MACRS (5 years). It can be operated for another four years. Its market value at that time, if sold, would be $14,000. The new machine has expected life of five years and expected to provide operating cash savings of $88,000 a year for 2 years and $50,000 a year for the next two years before depreciation and taxes (EBD&T). After four years the new machine can be sold for $12,750. To support the increased business resulting from the purchase of new machine, A/R will increase by $12,000; inventory will increase by $25,000 and current liabilities by $41,000. The cost of capital is 17% and the tax rate is 40%. What is NPV? Question 9 options: $56,900 -$65,880 -$63,118 -$76,890
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,000,000, and it would cost another $20,000 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $576,000. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $424,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 35%. Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. What is the Year-0 net cash flow? $ If the project's cost of capital is 11 %, what is the NPV of the 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 $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
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
Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $22,000. It will last 10 years with annual maintenance costs of $800 per year. After 10 years the machine can be sold for $2,310. Machine B could be purchased for $20,000. It also will last 10 years and will require maintenance costs of $3,200 in year three, $4,000 in year six, and $4,800 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase? Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round…
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
A new production system for a factory is to be purchased and installed for $135331. This system will save approximately 300,000 kWh of electric power each year for a 6-year period. Assume the cost of electricity is $0.10 per kWh, and factory MARR is 15% per year, and the salvage value of the system will be $8662 at year 6. Using the PW method to analyzes if this investment is economically justified A- calculate the PW of the above investment and insert the result below.
Baghiben

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