Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machinepress for $429,000 is estimated to result in $161,000 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS schedule) and it will have a salvage value at the end of the project of $62,000. The press alsorequires an initial investment in spare parts inventory of $16,700. along with an additional $3,700 in inventory foreach succeeding year of the project. The shop's tax rate is 22 percent and its discount rate is 9 percent. Calculate theproject's NPV.

Part 2: Explanation:Step 1: Calculate annual depreciation expense using MACRS.The MACRS depreciation…

Answered: Tanaka Machine Shop is considering a…

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

Problem 1PS

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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 falls in the MACRS five-year class (MACRS schedule) 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.
CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $405,000 is estimated to result in $149,000 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table) and it will have a salvage value at the end of the project of $50,000. The press also requires an initial investment in spare parts inventory of $15,500, along with an additional $2,500 in inventory for each succeeding year of the project. The shop's tax rate is 25 percent and its discount rate is 12 percent. Calculate the project's NPV. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Net present value
A company is considering the opportunity to invest into a new 12- year project: manufacturing and selling remote-controlled tree houses. $500,000 would need to be spent upfront to cover the cost of buying the necessary production equipment, which will be depreciating at a constant rate each year over its 12-year economic life. The equipment will be worthless when the project ends. Additional information regarding the tree houses production: $2,600 in per-tree-house costs, a.k.a. variable cost of production $34,000 in total (i.e., not per tree house) annual fixed production costs Each sold tree house is estimated to bring the company $3,100. The tax rate of 22% applies to the company's taxable income each year. This project requires a 12% annual rate of return. Answer the following: If the company manufactures and sells [Select ] tree houses each year, then it will break even in the "financial" sense. However, if the cost of buying the necessary production equipment turns out [ Select ]…
Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $417,000 is estimated to result in $155,000 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS schedule) and it will have a salvage value at the end of the project of $56,000. The press also requires an initial investment in spare parts inventory of $16,100, along with an additional $3,100 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. Net present value
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $71,000. The machine would replace an old piece of equipment that costs $18,000 per year to operate. The new machine would cost $8,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $26,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%) 1. Depreciation expense 2. Incremental net operating income 3. Initial investment 4.…
Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $54,000. It will last 10 years with annual maintenance costs of $1,700 per year. After 10 years the machine can be sold for $5,670. Machine B could be purchased for $45,000. It also will last 10 years and will require maintenance costs of $6,800 in year three, $8,500 in year six, and $10,200 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase?
Cori's Meats is looking at a new sausage system with an installed cost of $505,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $75,000. The sausage system will save the firm $185,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $34,000. If the tax rate is 25 percent and the discount rate is 8 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ 553,988.52
Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $892,800 is estimated to result in $297,600 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $130,200. The press also requires an initial investment in spare parts inventory of $37,200, along with an additional $5,580 in inventory for each succeeding year of the project. If the shop's tax rate is 22 percent and its discount rate is 19 percent, what is the NPV for this project?
Alliance Manufacturing Company is considering the purchase of a new automated drill press to replace an older one. The machine now in operation has a book value of zero and a salvage value of zero. However, it is in good working condition with an expected life of 10 additional years. The new drill press is more efficient than the existing one and, if installed, will provide an estimated cost savings (in labor, materials, and maintenance) of $6,000 per year. The new machine costs $25,000 delivered and installed. It has an estimated useful life of 10 years and a salvage value of $1,000 at the end of this period. The firm’s cost of capital is 14 percent, and its marginal income tax rate is 40 percent. The firm uses the straight-line depreciation method. Complete the following table to compute the net present value (NPV) of the investment. (Hint: Remember that, in Year 10, Alliances also receives the salvage value of the machine.) Year Cash Flow PV Interest Factor at 14%…
Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $844,800 is estimated to result in $281,600 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $123,200. The press also requires an initial investment in spare parts inventory of $35,200, along with an additional $5,280 in inventory for each succeeding year of the project. If the shop's tax rate is 25 percent and its discount rate is 12 percent, what is the NPV for this project? Multiple Choice $-924.19 $1,690.87 $-92,906.13 ○ $-970.40 ○ $-877.99
Consider the following project of Hand Clapper, Incorporated. The company is considering a four-year project to manufacture clap-command garage door openers. This project requires an initial investment of $14 million that will be depreciated straight- line to zero over the project's life. An initial investment in net working capital of $590,000 is required to support spare parts inventory; this cost is fully recoverable whenever the project ends. The company believes it can generate $11.6 million in pretax revenues with $4.4 million in total pretax operating costs. The tax rate is 21 percent and the discount rate is 11 percent. The market value of the equipment over the life of the project is as follows: Year Market Value (millions) a. 1 $ 11.2 9.1 234 4.9 1.3 Assuming the company operates this project for four years, what is the NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.) b-1. Compute…
A Funiture Factory is considering buying a new automated planing machine for a cost of $80,250. This price includes a complete guarantee of the maintenance costs for the first two years, and it covers a good proportion of the maintenance costs for years 3 and 4. The company’s portion of the maintenance cost is estimated to be $1,000 in year 3 and $3,000 in year 4. Depreciation on the capital cost would be 7% per year. Determine the Economic Life and EAC* of the new machine assuming the MARR is 6.5% and that there will be an installation cost of $2,800. PLEASE PLEASE SHOW FULL DETAILED STEPS

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