Using excel formulas to solve The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer has 6 years of remaining life. If kept, the steamer will have depreciation expenses of $650 for 5 years and $325 for the sixth year. Its current book value is $3,575, and it can be sold on an Internet auction site for $4,175 at this time. If the old steamer s not replaced, it can be sold for $800 at the end of its useful life. Gilbert is considering purchasing the Side Steamer 3000, a higher-end steamer, which costs $13,000, and has an estimated useful life of 6 years with an estimated salvage value of $1,300. This steamer falls into the MACRS 5-years class, so the applicable depreciation rates are 20.00 %, 32.00 %, 19.20 %, 11.52 %, 11.52%, and 5.76%. The new steamer is faster and allows for an output expansion, so sales would rise by $2,000 per year, the new machine's much greater efficiency would reduce operating expenses by $1,600 per year. To support the greater sales, the new machine would require that inventories increase by $2,900, but accounts payable would simultaneously increase by $700. Gilbert's marginal federal-plus- state tax rate is 25 %, and the project cost of capital is 15%. What is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar. $ Should it replace the old steamer? The old steamer be replaced.
Using excel formulas to solve The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer has 6 years of remaining life. If kept, the steamer will have depreciation expenses of $650 for 5 years and $325 for the sixth year. Its current book value is $3,575, and it can be sold on an Internet auction site for $4,175 at this time. If the old steamer s not replaced, it can be sold for $800 at the end of its useful life. Gilbert is considering purchasing the Side Steamer 3000, a higher-end steamer, which costs $13,000, and has an estimated useful life of 6 years with an estimated salvage value of $1,300. This steamer falls into the MACRS 5-years class, so the applicable depreciation rates are 20.00 %, 32.00 %, 19.20 %, 11.52 %, 11.52%, and 5.76%. The new steamer is faster and allows for an output expansion, so sales would rise by $2,000 per year, the new machine's much greater efficiency would reduce operating expenses by $1,600 per year. To support the greater sales, the new machine would require that inventories increase by $2,900, but accounts payable would simultaneously increase by $700. Gilbert's marginal federal-plus- state tax rate is 25 %, and the project cost of capital is 15%. What is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar. $ Should it replace the old steamer? The old steamer be replaced.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Don't provide
Transcribed Image Text:Using excel formulas to solve The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape
guitar sides. The steamer has 6 years of remaining life. If kept, the steamer will have depreciation expenses of $650 for 5 years and $325
for the sixth year. Its current book value is $3,575, and it can be sold on an Internet auction site for $4,175 at this time. If the old steamer
is not replaced, it can be sold for $800 at the end of its useful life. Gilbert is considering purchasing the Side Steamer 3000, a higher-end
steamer, which costs $13,000, and has an estimated useful life of 6 years with an estimated salvage value of $1,300. This steamer falls
into the MACRS 5-years class, so the applicable depreciation rates are 20.00 %, 32.00 %, 19.20%, 11.52%, 11.52 %, and
5.76%. The new steamer is faster and allows for an output expansion, so sales would rise by $2,000 per year; the new machine's much
greater efficiency would reduce operating expenses by $1,600 per year. To support the greater sales, the new machine would require
that inventories increase by $2,900, but accounts payable would simultaneously increase by $700. Gilbert's marginal federal-plus-
state tax rate is 25 %, and the project cost of capital is 15%. What is the NPV of the project? Do not round intermediate calculations.
Round your answer to the nearest dollar. $ Should it replace the old steamer? The old steamer be replaced.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 2 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education