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
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
Excel Applications for Accounting Principles
4th Edition
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Gaylord N. Smith
Chapter26: Capital Budgeting (capbud)
Section: Chapter Questions
Problem 5R
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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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F561aa1ef-92aa-47a4-b070-5117b3295b00%2Fe6e6a5ed-746d-4de7-aed7-e10db3a77fea%2Fva0r73r_processed.png&w=3840&q=75)
Transcribed Image Text: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
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