Your company is interested in investing in a new die casting machine. The machine costs $120,000 and has an expected life of ten years. This machine is expected to save the company $40,000 per year in labor and utility costs, but it should incur an additional $15,000 per year in repair costs. Salvage value for the equipment is expected to be $20,000. Bonus depreciation under the Tax Reduction and Jobs Act is expected to be 60%. The equipment is classed under MACRS at a seven-year life. Inflation is expected to be 2.5% per year, and the marginal tax rate is 24%. Find Net Present Value, Internal Rate of Return, and Payback if the MARR is 14%. Is this a good investment to make?
Your company is interested in investing in a new die casting machine. The machine costs $120,000 and has an expected life of ten years. This machine is expected to save the company $40,000 per year in labor and utility costs, but it should incur an additional $15,000 per year in repair costs. Salvage value for the equipment is expected to be $20,000. Bonus depreciation under the Tax Reduction and Jobs Act is expected to be 60%. The equipment is classed under MACRS at a seven-year life. Inflation is expected to be 2.5% per year, and the marginal tax rate is 24%. Find Net Present Value, Internal Rate of Return, and Payback if the MARR is 14%. Is this a good investment to make?
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
Related questions
Question
Solve it correctly.
Transcribed Image Text:Your company is interested in investing in a
new die casting machine. The machine costs
$120,000 and has an expected life of ten
years. This machine is expected to save the
company $40,000 per year in labor and utility
costs, but it should incur an additional $15,000
per year in repair costs. Salvage value for the
equipment is expected to be $20,000. Bonus
depreciation under the Tax Reduction and
Jobs Act is expected to be 60%. The
equipment is classed under MACRS at a
seven-year life. Inflation is expected to be 2.5%
per year, and the marginal tax rate is 24%. Find
Net Present Value, Internal Rate of Return, and
Payback if the MARR is 14%. Is this a good
investment to make?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 6 steps with 7 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education