Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $401, 000 is estimated to result in $147,000 in annual pretax cost savings. The press qualifies for 100 percent bonus depreciation and it will have a salvage value at the end of the project of $48,000. The press also requires an initial investment in spare parts inventory of $15, 300, along with an additional $2,300 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.

Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $401, 000 is estimated to result in $147,000 in annual pretax cost savings. The press qualifies for 100 percent bonus depreciation and it will have a salvage value at the end of the project of $48,000. The press also requires an initial investment in spare parts inventory of $15, 300, along with an additional $2,300 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.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 5P

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