Geary Machine Shop is considering a four-year project to improve its production
ID: 2790961 • Letter: G
Question
Geary Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $864,000 is estimated to result in $288,000 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $126,000. The press also requires an initial investment in spare parts inventory of $36,000, along with an additional $5,400 in inventory for each succeeding year of the project.
If the shop's tax rate is 34 percent and its discount rate is 10 percent, what is the NPV for this project? (Do not round your intermediate calculations.)
Answer options are:
$12,811.73
$15,175.91
$-89,723.43
$13,452.32
$12,171.14
Required :If the shop's tax rate is 34 percent and its discount rate is 10 percent, what is the NPV for this project? (Do not round your intermediate calculations.)
Answer options are:
Explanation / Answer
0 1 2 3 4 Cost of Machine -864000 After Tax saving in Operating Cost 190080 190080 190080 190080 Tax Saving On depreciation 58752.0 94003.2 56401.9 33841.2 Net Proceeds of sale of machine 133922 Working Capital -36000 -5400 -5400 -5400 52200 Net Cash Flow -900000 243432 278683.2 241081.9 410042.9 PV factor 1 0.909091 0.826446 0.751315 0.683013 PV of cash Flow -900000 221301.8 230316.7 181128.4 280064.8 NPV 12811.73 1 2 3 4 Total Cost Of Machine 864000 864000 864000 864000 20% 32% 19.20% 11.52% Depreciation 172800 276480 165888 99532.8 714700.8 Cost Of Machine 864000 Accumulated Depreciation 714701 Book Value 149299 Sales Value 126000 Loss on Sale of Fixed asset -23299 Tax credit on Loss 7922 Net Procceds from sale of Machine 133922
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