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
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9ea8affe-4b2e-48c3-8486-68062a285f06%2Fc713aa4c-7e4a-4a11-b4f5-4ac093282c5a%2F1pbnzg_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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
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