P10-21 Cost-Cutting Proposals [LO2] Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $844,800 is estimated to result in $281,600 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 $123,200. The press also requires an initial investment in spare parts inventory of $35,200, along with an additional $5,280 in inventory for each succeeding year of the project. If the shop's tax rate is 23 percent and its discount rate is 10 percent, what is the NPV for this project? Multiple Choice $46,816.22 $49127.86 $-51,728.78 $49.157.03 $44,475.41
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- 11.2 The Wellington Construction Company is considering acquiring a new earthmover. The mover's basic price is $90,000, and it will cost another $18,000 to modify it for special use by the company. This earthmover falls into the MACRS five-year class. It will be sold after four years for $30,000. The purchase of the earthmover will have no effect on revenues, but it is expected to save the firm $35,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate (federal plus state) is 25%, and its MARR is 10%.hat is the new NPV? 14. Project Evaluation Kolby's Korndogs is looking at a new sausage system with an installed cost of $655,000. This cost will be depreciated straight- line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $85,000. The sausage system will save the firm $183,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $35,000. If the tax rate is 22 percent and the discount rate is 8 percent, what is the NPV of this project? LO 2 qunnore the fixedCost-Cutting Proposals Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $445,000 is estimated to result in $160,000 in annual pretax cost savings. The press falls in the MACRS fiveyear class, and it will have a salvage value at the end of the project of $40,000. The press also requires an initial investment in spare parts inventory of $20,000, along with an additional $2,800 in inventory for each succeeding year of the project. If the shop's tax rate is 22 percent and its discount rate is 9 percent, should the company buy and install the machine press?
- New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,080,000, and it would cost another $19,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $590,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $17,000. The sprayer would not change revenues, but it is expected to save the firm $332,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. What is the Year-0 net cash flow? $ What are the net operating cash flows in Years 1, 2, and 3? Year 1: $ Year 2: $ Year 3: $ What is…021 The Times newspaper is trying to decide between two machines. Machine A costs $80,000 and is expected to last 12 years, with a $14,000 salvage value. The annual maintenance and operating expenses are $4,000 per year. It will require major maintenance in year 5, which costs $2,000. Alternatively, Machine B costs $57,000. This machine will last for only 6 years because of its higher technology and delicate design, and its salvage value is assumed to be $15,000. The annual maintenance and operating are expected to be $8,000 per year. Based on a present worth comparison, which machine should be used using an 8-year study period at an interest rate of 8% per year. And why? Note, assuming the book value as a reasonable estimate for the market value, the book value of machine A in year 8 is $36,000, while the book value of Machine B in year 2 is $43,000.New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,010,000, and it would cost another $16,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $555,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $17,000. The sprayer would not change revenues, but it is expected to save the firm $324,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. What is the Year-0 net cash flow? $ What are the net operating cash flows in Years 1, 2, and 3? Year 1: $ Year 2: $ Year 3: $…
- V14 Steadman Company is considering an investment in a new machine for an independent five-year project. The machine’s cost is $837,500 with no salvage value at the end of five years. Net cash inflows from the project are expected to be $252,500 annually. Steadman would depreciate the machine using the MACRS schedule, and the machine qualifies as a 5-year asset. Steadman uses a discount rate of 8%, and its tax rate is 30%. Required: 1. Determine the after-tax net income and after-tax cash flows from the investment. Refer to Exhibit 12.4 for the 5-year MACRS deprecation schedule. 2. Determine the NPV of the project. 3. Determine the IRR of the project. 4. Determine the payback period of the project, assuming that cash flows occur evenly in each year. 5. Determine the book (accounting) rate of return using both (a) the initial investment as the denominator and (b) the average book value of the investment as the denominator.16) New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $810,000, and it would cost another $19,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $471,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $16,500. The sprayer would not change revenues, but it is expected to save the firm $314,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. What is the Year-0 net cash flow? ________$ What are the net operating cash flows in Years 1, 2, and 3? Year 1: $ Year 2: $ Year 3: $…New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,090,000, and it would cost another $17,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $589,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $17,000. The sprayer would not change revenues, but it is expected to save the firm $326,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. What is the Year-0 net cash flow? What are the net operating cash flows in Years 1, 2, and 3? What is the additional Year-3 cash flow (i.e, the after-tax…
- New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,090,000, and it would cost another $17,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $589,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $17,000. The sprayer would not change revenues, but it is expected to save the firm $326,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. What is the Year-0 net cash flow? $ What are the net operating cash flows in Years 1, 2, and 3? Year 1: $ Year 2: $ Year 3: $ What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of…New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,090,000, and it would cost another $20,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $613,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $14,000. The sprayer would not change revenues, but it is expected to save the firm $346,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. What is the Year-0 net cash flow? $ What are the net operating cash flows in Years 1, 2, and 3? Year 1: $ Year 2: $ Year 3: $ What is…10.3 You have been asked to evaluate the proposed acquisition of a new clinical laboratory test system. The system’s price is $50,000, and it will cost another $10,000 for transportation and installation. The system is expected to be sold after three years because the laboratory is being moved at that time. The best estimate of the system’s salvage value after three years is $20,000. The system will have no impact on volume or reimbursement (and hence revenues), but it is expected to save $20,000 per year in operating costs. The not-for-profit business’s corporate cost of capital is 10 percent, and the standard risk adjustment is 4 percentage points. What is the project’s net investment outlay at time 0? What are the project’s operating cash flows in years 1, 2, and 3? What is the terminal cash flow at the end of year 3? If the project has average risk, is it expected to be profitable? What if the project is judged to have lower-than-average risk? Higher-than average risk?