Starset Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $405,000 is estimated to result in $157,000 in annual pretax cost savings. The press falls in the 5-year MACRS class, and it will have a salvage value at the end of the project of $57,000. The press also requires an initial investment in spare parts inventory of $24,000, along with an additional $3,300 in inventory for each succeeding year of the project. The shop's tax rate is 24 percent and its discount rate is 11 percent. (MACRS schedule) 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
Starset Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $405,000 is estimated to result in $157,000 in annual pretax cost savings. The press falls in the 5-year MACRS class, and it will have a salvage value at the end of the project of $57,000. The press also requires an initial investment in spare parts inventory of $24,000, along with an additional $3,300 in inventory for each succeeding year of the project. The shop's tax rate is 24 percent and its discount rate is 11 percent. (MACRS schedule) 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
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 4P
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Question
Transcribed Image Text:Starset Machine Shop is considering a 4-year project to improve its production
efficiency. Buying a new machine press for $405,000 is estimated to result in $157,000
in annual pretax cost savings. The press falls in the 5-year MACRS class, and it will have
a salvage value at the end of the project of $57,000. The press also requires an initial
investment in spare parts inventory of $24,000, along with an additional $3,300 in
inventory for each succeeding year of the project. The shop's tax rate is 24 percent and
its discount rate is 11 percent. (MACRS schedule)
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
Itranscript
Transcribed Image Text:Year
1
2
3
4
5
6
7
8
Property Class
Three-Year
33.33%
44.45
14.81
7.41
Five-Year
20.00%
32.00
19.20
11.52
11.52
5.76
Seven-Year
14.29%
24.49
17.49
12.49
8.93
8.92
8.93
4.46
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