CSM Machine Shop is considering a four-year project to improve its productionefficiency. Buying a new machine press for $421,000 is estimated to result in $157,000 inannual pretax cost savings. The press is eligible for 100 percent bonus depreciation andit will have a salvage value at the end of the project of $58,000. The press also requiresan initial investment in spare parts inventory of $16,300, along with an additional $3,300in inventory for each succeeding year of the project. The shop's tax rate is 23 percentand its discount rate is 10 percent. Calculate the project's NPV. (Do not roundintermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)NPV

Net present value refers to the present value of all cashflows which is compared with the initial…

Answered: NPV | bartleby

Business

Finance

NPV

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section10.A: Mutually Exclusive Investments Having Unequal Lives

Problem 2P

See similar textbooks

Related questions

Q: quantity = 82,000 units. Suppose the company believes all of its estimates are accurate only to…

A: Revenue: It is the amount of money generated by the firm from its business activities. It is also…

Q: Badidap corp's ordinary share is currently trading at a price of P30 per share. The said share is…

A: Current Market Price = P 30 growth = g = 2% Projected EPS = P 6 Beta = β = 2 Market Risk Premium=…

Q: An analyst has gathered the following information for the Oudin Corporation: Expected earnings per…

A: The price of the share will be calculated first using the dividend discounting model which will…

Q: FYT Inc estimates that a new project with conventional cash flows will generate an NPV of $500,000.…

A: Profitability Index is technique under Capital budgeting which shown the relationship between the…

Q: Bowl Corporation has obtained a line of credit facility of $1 million from Plate Bank at 6% interest…

A: Line of credit: A line of credit is typically a short-term loan that a firm can avail of from a…

Q: What comes closest to the internal rate of return on a 5-year project with an immediate cost of $600…

A: Solution:- Internal Rate of Return (IRR) is the rate of return earned by investing in a project. At…

Q: Dog Up! Franks is looking at a new sausage system with an installed cost of $680,000. This cost will…

A: Net present value (NPV) of an alternative/project refers to the difference between the initial…

Q: What is the incremental after-tax operating cash flow (OCF)

A: Incremental sales = $2,400,000 Incremental expenses = $1,400,000 Tax rate = 32% Initial Investment =…

Q: A $1,000.00, 8.0% Semi-Annual Bond matures on October 1, 2036. The Bond may be called at 102.5 on…

A: Given, The face value of bond is $1000 The coupon rate is 8%

Q: .Intrinsic valuation and relative valuation

A: Preference shares refer to the shares that enable the shareholders for receiving dividend that is…

Q: Printgo Suppliers had an inventory of 10 printers at R2 000 each on 01 March 2022. The following…

A: The Weighted average cost method assigns a cost to inventory items based on the total cost of goods…

Q: What is the company's weighted average cost of capital?

A: Here, Debt (w2) = 23% Common stock (w1) = 77% Expected return on debt (before-tax) (Kd) = 5.3%…

Q: Filer Manufacturing has 9,839,969 shares of common stock outstanding. The current share price is…

A: Market value Market value is the word used to define the total value of an asset or a company's…

Q: What exactly is a programme? What is a portfolio of projects? Examine the link between project,…

A: Portfolio is referred as the collection of the financial investments such as - bonds, commodities,…

Q: What are Capital Markets, and how do bonds markets fit into the definition of Capital Markets?

A: Capital markets is a broad term used to describe a venue where funds are exchanged between suppliers…

Q: Which of the following is NOT the main function of Bank Negara Malaysia (BNM)? Select one: It…

A: The Bank Negara Malaysia is central Bank of Malaysia and it is acting as a banker to Malaysian…

Q: Determine the periodic payments on the given loan or mortgage. HINT [See Example 5.] (Round your…

A: Annuity (periodic payment) refers to an amount or stream of equal cash flows (CF) paid or received…

Q: You are selling your car and the dealership says to you, "we can either give you $15,000 today or we…

A: Solution:- When an amount is borrowed, it can either be repaid as a lump sum payment or in…

Q: A company is in need of a small vehicle to make deliveries. It is intending to choose between 2…

A: The present worth analysis is a method of finding the best alternative by finding out their…

Q: Which of the following statements are incorrect: i) Net income represents cash available to pay…

A: Net income (NI) is computed by subtracting revenues from costs, interest, and taxes. NI is used to…

Q: Mark has a credit card balance of $25,000. The annual est rate is 17%. He is required to pay a…

A: Data given: Credit card balance= $25000 Annual interest rate = 17% Minimum payment = 3.5% of…

Q: I have seen an example problem and see the formula they put into their calculator. But when I type…

A: Loan: It is a form of credit provided by the lender to the borrower. The borrower makes periodic…

Q: Compute each investment’s Internal Rate of Return (IRR). v. Which investment should Mr. Dates…

A: Here, To Find: Part 1. Internal Rate of Return (IRR) =?Part 2. Decision to accept and why =? Part…

Q: Match each term with the best definition or descriptor. NPV is __________ ( a unitless ratio, a…

A: Solution:- Net Present Value (NPV) means the net present value of cash inflows after the deduction…

Q: effective yield of the

A: Mortgage refers to the process of giving a guarantee of collateral in exchange for offering…

Q: Juan obtains a loan of $10,000 for 5 years, with interest at 8% effective, 3 years later obtains…

A: The present value is equivalent today of value of future payments based on time period and interest…

Q: A3) Finance Ahmad deposits $1,200 in her bank today. If the bank pays 4 percent simple interest, how…

A: Compounded Interest is that under which we will received the interest on principal as well as…

Q: A drill press was purchased 4 years ago for $40,000. Its estimated salvage value after 7 years was…

A: Marginal cost The term "marginal cost" refers to additional expenses that are added to the…

Q: For an effective interest rate of 16% per annum, what is the equivalent nominal annual rate…

A: The periodic interest rate is multiplied by the number of periods in a year to create the nominal…

Q: Determine if asset, liability, cash inflow or outflow: *weekly paycheck *alimony from your ex

A: Solution:- Asset means something that an individual owns and holds and also gets benefit from it in…

Q: stock currently sells for RM123. It's expected earnings per share are RM5.12. The average P/E ratio…

A: P/E ratio is very important for comparison across the industry and it tells that stock will rise or…

Q: Compute the NPV (at 10 percent cost of capital) and IRR to determine the financial feasibility of…

A: Internal Rate of Return: It is the rate at which the net present value of an investment becomes…

Q: The nation of Qatar just issued a perpetual bond. The bond will pay $1,000 in one year and that will…

A: Cash Flow = $1,000 Growth Rate = 1% Discount Rate = 4%

Q: You live in the United States and want to try to make some money through interest rate arbitrage…

A: Foreign Exchange Market is that under which we were trading in Foreign Currency we can make the…

Q: Which of the following is NOT the role of Ministry of Finance under IFSA 2013 and FSA 2013?…

A: The Ministry of finance is very important of government department and has much bigger role in…

Q: You have 100/300/50 in insurance coverage. You just got into an accident with a car carrying 15…

A: 100/300/50 is a type of automobile liability insurance cover which covers below 3 aspects:…

Q: Filer Manufacturing has 6,820,579 shares of common stock outstanding. The current share price is…

A: Data given: A) First bond issue Face value = $45,114,745 Coupon=0.05 n=10 years Sells for 83…

Q: Find out the financial leverage from the following data: Net Worth Rs. 25,00,000 Debt / Equity 3:1…

A: In finance financial leverage is the use of debt to buy more assets. Financial leverage is used with…

Q: What is the uniform series of payments equivalent to the following present values a) $50,000. The…

A: Installment : It is a sum of money that is due as among one of the several equal payments for an…

Q: Year Plant, Property, Equipment (Gross) Accumulated depreciation reported in 2020 Annual…

A: Gross Plant , property , Equipment in year 2016 is $710,000 Accumulated depreciation in 2020 is…

Q: 1-Jan-20 100,000.00 800,000.00 26.00 Shs Outstanding SHE, in pesos MP per sh Div per sh Cost of…

A: Market value added: MVAs are depictions of the value produced by the management of a firm through…

Q: Income before interest expense Interest expense Net income Equity Return on equity 1 Don't Expand…

A: Financing refers to the process of raising funds for the business operations like purchasing,…

Q: Filer Manufacturing has 9,986,779 shares of common stock outstanding. The current share price is…

A: Data given: P0= Current share price = $78.51 D0= Current dividend= $0.56 g=Growth rate= 0.05…

Q: Which projects should the company accept? Check all that apply: Project C Project A Project B Submit

A: NPV or Net present value = - Initial outlay + Present value of future cash flows

Q: Bond Quote DEERE, Inc. Current Price: $98.00 Face Value: $100.00 Annual Coupon Rate: 3% Coupons Per…

A: Yield to Maturity refers to the internal rate of return which is earned by the investor who makesthe…

Q: You work as the CEO of StarBright Berhad, and the company is facing the threa buyout by StarZip…

A: Take over and mergers are very common in today's time where there are mergers and acquisitions are…

Q: Using the below informtion answer: 5.1 Payback Period of Project Tan (expressed in years, months…

A: The payback period is a method of finding out the profitability of a project. It calculates the time…

Q: What is EVA •107,500 • 127,500 • 60,0000 • 105,000

A: EVA is the economic value added that how much company is earning above the cost of capital of the…

Q: what is the bond price if priced with the assumption that it will be called on the first available…

A: Bond valuation (BV) refers to a method or technique which is used to compute the current value or…

Q: Mr. Kevin Dates is the owner of an expanding business operating in bakery industry located in…

A: NPV is techniques under Capital budgeting which help in decision making on the basis of positive…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

100%

CSM Machine Shop is considering a four-year project to improve its production
efficiency. Buying a new machine press for $421,000 is estimated to result in $157,000 in
annual pretax cost savings. The press is eligible for 100 percent bonus depreciation and
it will have a salvage value at the end of the project of $58,000. The press also requires
an initial investment in spare parts inventory of $16,300, along with an additional $3,300
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. (Do not round
intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
NPV

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $190,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $87,000 per year; and Machine 360-6, which has a cost of $360,000, a 6-year life, and after-tax cash flows of $98,300 per year. Knitting machine prices are not expected to rise because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins’ cost of capital is 14%. Should the firm replace its old knitting machine? If so, which new machine should it use? By how much would the value of the company increase if it accepted the better machine? What is the equivalent annual annuity for each machine?
Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at 860,000 and includes computerized equipment, software, and installation. There is no expected salvage value. The new system has a useful life of 8 years and is projected to produce cash operating savings of 225,000 per year over the old system (reducing labor costs and costs of processing and disposing of toxic waste). The cost of capital is 16%. Required: 1. Compute the NPV of the new system. 2. One year after implementation, the internal audit staff noted the following about the new system: (1) the cost of acquiring the system was 60,000 more than expected due to higher installation costs, and (2) the annual cost savings were 20,000 less than expected because more labor cost was needed than anticipated. Using the changes in expected costs and benefits, compute the NPV as if this information had been available one year ago. Did the company make the right decision? 3. CONCEPTUAL CONNECTION Upon reporting the results mentioned in the postaudit, the marketing manager responded in a memo to the internal audit department indicating that cash inflows also had increased by a net of 60,000 per year because of increased purchases by environmentally sensitive customers. Describe the effect that this has on the analysis in Requirement 2. 4. CONCEPTUAL CONNECTION Why is a postaudit beneficial to a firm?
Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?
After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide whether to go ahead and develop the deposit. The most cost-effective method of mining gold is sulfuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, CTC must spend 900,000 for new mining equipment and pay 165,000 for its installation. The mined gold will net the firm an estimated 350,000 each year for the 5-year life of the vein. CTCs cost of capital is 14%. For the purposes of this problem, assume that the cash inflows occur at the end of the year. a. What are the projects NPV and IRR? b. Should this project be undertaken if environmental impacts were not a consideration? c. How should environmental effects be considered when evaluating this or any other project? How might these concepts affect the decision in part b?
Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 25%. What is the initial investment outlay? The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay? Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. What is the initial investment outlay?