Tanaka Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $460,000 is estimated to result in $190,000 in annual pretax cost savings. The press falls in the 5-year MACRS class, and it will have a salvage value at the end of the project of $74,000. The press also requires an initial investment in spare parts inventory of $35,000, along with an additional $3,850 in inventory for each succeeding year of the project. The shop's tax rate is 25 percent and its discount rate is 8 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
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Tanaka Machine Shop is considering a 4-year project to improve its production
efficiency. Buying a new machine press for $460,000 is estimated to result in $190,000
in annual pretax cost savings. The press falls in the 5-year MACRS class, and it will have
a salvage value at the end of the project of $74,000. The press also requires an initial
investment in spare parts inventory of $35,000, along with an additional $3,850 in
inventory for each succeeding year of the project. The shop's tax rate is 25 percent and
its discount rate is 8 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
No
Transcribed Image Text:10 Tanaka Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $460,000 is estimated to result in $190,000 in annual pretax cost savings. The press falls in the 5-year MACRS class, and it will have a salvage value at the end of the project of $74,000. The press also requires an initial investment in spare parts inventory of $35,000, along with an additional $3,850 in inventory for each succeeding year of the project. The shop's tax rate is 25 percent and its discount rate is 8 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 No
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