The production manager of Tany Company prepared the following data to convince t
ID: 2563179 • Letter: T
Question
The production manager of Tany Company prepared the following data to convince the general manager to acquire a new machine
The cost of machine
150,000
Useful life
3
years
Cash cost savings
50,000
Tax rate
20%
Cost of capital
10%
Find Net Present Value
-$30,000 to -$20,000
-$20,000 to -$10,000
-$10,000 to +$10,000
+$10,000 to +$20,000
+$20,000 to +$30,000
The production manager of Tany Company prepared the following data to convince the general manager to acquire a new machine
The cost of machine
150,000
Useful life
3
years
Cash cost savings
50,000
Tax rate
20%
Cost of capital
10%
Explanation / Answer
a.-$30,000 to -$20,000.
given ,
initial cost = $150,000.
annual depreciation = $150,000 / 3 years
=>$50,000.
annual cash flows are found out in the following table.
NPV is shown in the below table.
NPV is - 25,657 which lies between -$30,000 and -$20,000.
note:
PVA factor of 10% for 3 years => [ 1 - (1.1)^(-3)]/0.10
=>[ 1 - (0.7513148)]/0.10
=>2.486852
cost savings $50,000 Less: depreciation ($50,000) Before tax increase in income $0 less tax @20% $0 After tax net income from project $0 Add: depreciation $50,000 annual net cash flows from the project ($0 + $50,000) $50,000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.