Master Machine Berhad is considering a four-year project to improve its production efficiency. Buying a new machine press for RM385,000 is estimated to result in RM145,000 in annual pre-tax cost savings. The press is depreciated using straight-line method of 5 years, and it will have a salvage value at the end of the project of RM45,000. The press also requires an initial investment in spare parts inventory of RM20,000, along with an additional RM3,100 in inventory for each succeeding year of the project. If the company’s tax rate is 22 percent and its discount rate is 9 percent, should the company buy and install the machine press?
Master Machine Berhad is considering a four-year project to improve its production efficiency. Buying a new machine press for RM385,000 is estimated to result in RM145,000 in annual pre-tax cost savings. The press is depreciated using straight-line method of 5 years, and it will have a salvage value at the end of the project of RM45,000. The press also requires an initial investment in spare parts inventory of RM20,000, along with an additional RM3,100 in inventory for each succeeding year of the project. If the company’s tax rate is 22 percent and its discount rate is 9 percent, should the company buy and install the machine press?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 5P
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Master Machine Berhad is considering a four-year project to improve its production efficiency. Buying a new machine press for RM385,000 is estimated to result in RM145,000 in annual pre-tax cost savings. The press is
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