Tanaka Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $420,000 is estimated to result in $166,000 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 $66,000. The press also requires an initial investment in spare parts inventory of $27,000, along with an additional $3,450 in inventory for each succeeding year of the project. The shop's tax rate is 22 percent and its discount rate is 9 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? O Yes O No
Tanaka Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $420,000 is estimated to result in $166,000 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 $66,000. The press also requires an initial investment in spare parts inventory of $27,000, along with an additional $3,450 in inventory for each succeeding year of the project. The shop's tax rate is 22 percent and its discount rate is 9 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? O Yes O No
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 4P
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Transcribed Image Text:Tanaka Machine Shop is considering a 4-year project to improve its production
efficiency. Buying a new machine press for $420,000 is estimated to result in $166,000
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 $66,000. The press also requires an initial
investment in spare parts inventory of $27,000, along with an additional $3,450 in
inventory for each succeeding year of the project. The shop's tax rate is 22 percent and
its discount rate is 9 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?
O Yes
O No
4
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