Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $401, 000 is estimated to result in $147,000 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 $48,000. The press also requires an initial investment in spare parts inventory of $15, 300, along with an additional $2,300 in inventory for each succeeding year of the project. The shop's tax rate is 23 percent and its discount rate is 10 percent. Calculate the project's NPV.
Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $401, 000 is estimated to result in $147,000 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 $48,000. The press also requires an initial investment in spare parts inventory of $15, 300, along with an additional $2,300 in inventory for each succeeding year of the project. The shop's tax rate is 23 percent and its discount rate is 10 percent. Calculate the project's NPV.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine
press for $401,000 is estimated to result in $147,000 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 $48,000. The press also requires an initial
investment in spare parts inventory of $15, 300, along with an additional $2,300 in inventory for each succeeding year of
the project. The shop's tax rate is 23 percent and its discount rate is 10 percent. Calculate the project's NPV.
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