Warmack Machine Shop is considering a four-year project to improve its productio
ID: 2710015 • Letter: W
Question
Warmack Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $440,000 is estimated to result in $175,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $75,000. The press also requires an initial investment in spare parts inventory of $17,000, along with an additional $2,200 in inventory for each succeeding year of the project. The shop’s tax rate is 30 percent and its discount rate is 8 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.)
Warmack Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $440,000 is estimated to result in $175,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $75,000. The press also requires an initial investment in spare parts inventory of $17,000, along with an additional $2,200 in inventory for each succeeding year of the project. The shop’s tax rate is 30 percent and its discount rate is 8 percent. MACRS schedule.
Explanation / Answer
Answer:-
Purchase Price 440,000 Depreciation Year 1 20.00% 88,000 Depreciation Year 2 32.00% 140,800 Depreciation Year 3 19.20% 84,480 Depreciation Year 4 11.52% 50,688 Book Value at end of year 4 76,032Related Questions
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