Tanaka Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $395,000 is estimated to result in $151,000 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 $51,000. The press also requires an initial investment in spare parts inventory of $22,000, along with an additional $3,200 in inventory for each succeeding year of the project. The shop's tax rate is 22 percent and its discount rate is 9 percent. 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? O Yes O No

Tanaka Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $395,000 is estimated to result in $151,000 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 $51,000. The press also requires an initial investment in spare parts inventory of $22,000, along with an additional $3,200 in inventory for each succeeding year of the project. The shop's tax rate is 22 percent and its discount rate is 9 percent. 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? O Yes O No

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: A new lock is being considered for a dam, and it will cost $650,000 to design and build. Every 10…

A: here we calculate the given by following method as follow;

Q: An asset used in a four-year project falls in the five-year MACRS class (MACRS schedule) for tax…

A: After-tax salvage value is the actual money you pocket when selling a used asset, after factoring in…

Q: Question 6 of 8 Riverbed Corp's December 31, 2023 trial balance includes the following accounts:…

A: The objective of the question is to prepare the property, plant, and equipment section of the…

Q: A Canadian engineering company just bought a bending machine for $50,000. Its service life is 10…

A: Given that; Initial cost of machine=$50,000 Operating cost= $2000/year Salvage value = $2,000 Annual…

Q: Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying…

A: Net present value or NPV can be defined as the capital budgeting tool that is used to make a…

Q: The following pair of assets differ only in the MARR. The problem asks you to determine the effect…

A: Economic lives for an asset refers to the time period when the asset is useful for the owners. The…

Q: Determine the depreciation deduction and the unrecovered investment during each of the first 4 tax…

A: The Modified Accelerated Cost Recovery System (MACRS) is the tax depreciation system used in the…

Q: SABIC purchased a machine for SR 120,000. The machine can be used for two years with salvage value…

A: We are going to use project valuation methods to solve this question.

Q: ABC is considering the purchase of a $3,000 souffle maker, which has a life of 3 years and will be…

A: In this question:- ABC is considering of purchasing of a $3,000 souffle maker, This machine has a…

Q: 2.5. An electric cooperative is considering the use of a concrete electric pole in the expansion of…

Q: Sooky has a spotter truck with a book value of $43,000 and a remaining useful life of five years. At…

A: The purchase price of the new spotter truck is $123,000.The trade-in value of the old spotter truck…

Q: A business is considering purchasing a $200,000 management system. The plan is to depreciate to zero…

A: a Time line 0 1 2 3 4 Cost of…

Q: Deutsche Transport can lease a truck for four years at a cost of €41,000 annually. It can instead…

A: EAC refers to the annual cost of owning, operating, and maintaining an asset over its entire life.

Q: Question 2 Part A: A new project is being considered. The initial cost of the project is $100,000.…

A: A Cash Flow Diagram (CFD) is a graphical representation of cash inflows and outflows over a certain…

Q: 15. Two options of feed-water storage installation are being considered to serve over 20 years of…

A: Since you have posted multiple questions, will provide the solution to only the first question as…

Q: Guelph Inc. would like you to assess the after-tax viability of a new machine using annual worth…

A: The annual worth method or AW method implies that all the incomes along with disbursements, regular…

Q: The following pair of assets differ only in the MARR. The problem asks you to determine the effect…

A: The economic life of an asset refers to the period over which the asset is expected to be…

Q: None

A: To solve this problem, we'll calculate the depreciation using both the Double Declining Balance…

Q: A university student painter is considering the purchase of a new air compressor and paint gun to…

A: Net Present Value (NPV) : It is a financial metric used to evaluate the profitability of an…

Q: Your firm is contemplating the purchase of a new $540,000 computer-based order entry system. The…

A: Cash flow extracted from the regular business processes is the operating cash flow. It is one of the…

Q: mic) Liberty Airways is considering an investment of $830,000 in ticket purchasing kiosks at…

A: Net Present Value (NPV) is used to evaluate the profitability of an investment or project. It…

Q: A company is evaluating the addition of equipment to its present operations. They need to purchase…

A: Current market value = $160,000 Gross revenue = $30,000 Maintenance cost = $5,000 Life = 4Years…

Q: manufacturer of linear accelerators: • The linear accelerator costs $450,000 and has a service life…

A: Given The initial cost of the linear accelerator is (P)=$450,000 Service life =5 years The…

Q: . Two options of feed-water storage installation are being considered to serve over 20 years of…

A: Present worth In this process of comparison, the cash flows of each option will be reduced to time 0…

Q: A machine that costs $12,000 is expected to operate for 10 years. The estimated salvage value at the…

A: Answer a)The following calculation is done to calculate IRR

Q: None

A: To find the present value of the net benefits for each scenario, we can use the formula for…

Question

Tanaka Machine Shop is considering a 4-year project to improve its production
efficiency. Buying a new machine press for $395,000 is estimated to result in $151,000 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 $51,000. The press also requires
an initial investment in spare parts inventory of $22,000, along with an additional $3,200
in inventory for each succeeding year of the project. The shop's tax rate is 22 percent
and its discount rate is 9 percent. 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?
O Yes
O No

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Define Net present vapue:-

VIEW

Step 2: 1. Computation of Tax savings on Depreciation:-

VIEW

Step 3: 3. Computation of cash flows due to sale at the end of 4th year:-

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Raas Hardware is adding a new product line that will require an investment of $1,512,000. Managers estimate that this investment will have a 10-year life and generate net cash inflows of $330,000 the first year, $280,000 the second year, and $230,000 each year thereafter for eight years. Assume the project has no residual value. Compute the ARR for the investment. Round to two places. Select the formula, then enter the amounts to calculate the ARR (accounting rate of return) for the new product line. (Round ARR to the nearest hundredth percent [two decimal places]. X.XX%.) + CO 4 ARR %
A piece of new equipment has been proposed by engineers to increase the productivity of a certain manual welding operation. The investment cost is $25,000, and the equipment will have a market value of $5,000 at the end of a study period of seven years. Increased productivity attributable to the equipment will amount to $8,000 per year after extra operating costs have been subtracted from the revenue generated by the additional production. 1-1 If the firm's MARR is 20% per year, is this proposal a sound one? Use the PW method.
In excel
1. The Comil Corporation recently purchased a new machine for its factory operations at a cost of $390,875. The investment is expected to generate $125,000 in annual cash flows for a period of five years. The required rate of return is 12%. The old machine has a remaining life of five years. The new machine is expected to have zero value at the end of the five- year period. The disposal value of the old machine at the time of replacement is zero. What is the internal rate of return? A) 15% B) 16% C) 17% D) 18% 2. The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $380,000. The investment is expected to generate $125,000 in annual cash flows for a period of four years. The required rate of return is 12%. The old machine can be sold for $20,000. The machine is expected to have zero value at the end of the four-year period. What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not…
A)Two options of feed-water storage installation are being considered to serve over 20 years of useful life: Option 1: Build a 20,000-gallon tank on a tower. The cost of installing the tank and tower is estimated to be $170,000. The annual operating and maintenance cost after tax adjustment is estimated to be $2,000. The salvage value is estimated to be negligible. Option 2: Place a 20,000-gallon tank of equal capacity on a hill near the refinery. The cost of installing the tank on the hill, including the extra length of service lines, is estimated to be $120,000 with negligible salvage value. The annual operating and maintenance cost of the water tank is estimated to be $1,500 after tax adjustment. Because of the location, an additional investment of 13,000 in pumping equipment is required. The pumping equipment is expected to have a service life of 10 years with a salvage value of $2,000 at the end of that time. The annual operating and maintenance cost (including any incometax…
A hospital in NYC area bought a diagnostic machine at a cost of $40,000. Maintenance cost is expected to remain constant throughout the life of this machine at $2,000 per year. The salvage value is estimated to be “0” at the end of the useful life of 10 years. Determine the economic life of this machine. MARR = 10% A. 5 years B. 1 year C. 10 years D. 7 years
A firm is considering purchasing a machine that costs $76,000. It will be used for six years, and the salvage value at that time is expected to be zero. The machine will save $42,000 per year in labor, but it will incur $16,000 in operating and maintenance costs each year. The machine will be depreciated according to five-year MACRS. The firm's tax rate is 35%, and its after-tax MARR is 17%. Should the machine be purchased? Click the icon to view the MACRS depreciation schedules. Click the icon to view the interest factors for discrete compounding when / = 17% per year. The present worth of the project is $. (Round to the nearest dollar.)
7-22. A company is considering the purchase of a capital asset for $100,000. Installation charges needed to make the asset serviceable will total $30,000. The asset will be depreciated over six years using the straight-line method and an estimated salvage value (SV6) of $10,000. The asset will be kept in service for six years, after which it will be sold for $20,000. During its useful life, it is estimated that the asset will produce annual revenues of $30,000. Operating and maintenance (O&M) costs are estimated to be $6,000 in the first year. These O&M costs are projected to increase by $1,000 per year each year thereafter. The after tax MARR is 12% and the effective tax rate is 40%. (7.9) a. Use the tabular format given in Figure 7-5 to compute the after-tax cash flows. b. Compute the after-tax present worth of the project, and use a uniform gradient in your formulation. c. The before-tax present worth of this asset is -$50,070. By how much would the annual revenues have to increase…