Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $429,000 is estimated to result in $161,000 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 $62,000. The press also requires an initial investment in spare parts inventory of $16,700, along with an additional $3,700 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 project's NPV. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV

Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $429,000 is estimated to result in $161,000 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 $62,000. The press also requires an initial investment in spare parts inventory of $16,700, along with an additional $3,700 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 project's NPV. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section10.A: Mutually Exclusive Investments Having Unequal Lives

Problem 2P

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Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $445,000 is estimated to result in $160,000 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 $40,000. The press also requires an initial investment in spare parts inventory of $20,000, along with an additional $2,800 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? Yes ........... No
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