Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $500,000 is estimated to result in $205,000 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 $84,000. Refer to Table 8.3. The press also requires an initial investment in spare parts inventory of $23,000, along with an additional $ 2,800 in inventory for each succeeding year of the project. The shop's tax rate is 23 percent and the project's required return is 9 percent. Calculate the NPV of this project.

Excel Applications for Accounting Principles
4th Edition
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Gaylord N. Smith
Chapter26: Capital Budgeting (capbud)
Section: Chapter Questions
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Tanaka Machine Shop is considering a four-year
project to improve its production efficiency. Buying
a new machine press for $500,000 is estimated to
result in $205,000 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 $84,000. Refer to Table 8.3. The press also
requires an initial investment in spare parts
inventory of $23,000, along with an additional $
2,800 in inventory for each succeeding year of the
project. The shop's tax rate is 23 percent and the
project's required return is 9 percent. Calculate the
NPV of this project.
Transcribed Image Text:Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $500,000 is estimated to result in $205,000 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 $84,000. Refer to Table 8.3. The press also requires an initial investment in spare parts inventory of $23,000, along with an additional $ 2,800 in inventory for each succeeding year of the project. The shop's tax rate is 23 percent and the project's required return is 9 percent. Calculate the NPV of this project.
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