Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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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.
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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.
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