pleaes help and please show your work Warmack Machine Shop is considering a four
ID: 2716551 • Letter: P
Question
pleaes help and please show your work
Warmack Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for 480,000 dollars is estimated to result in 195,000 dollars in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of 81,000 dollars. The press also requires an initial investment in spare parts inventory of 21,000 dollars, along with an additional 2,600 dollars in inventory for each succeeding year of the project. The shop's tax rate is 30 percent and its discount rate is 8 percent. MACRS schedule Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places Should the company buy and install the machine press?Explanation / Answer
Calculation of Total Present value of savings
Calculation cost of Equipment
Calculation of NPV = Total Present value of savings - Cost of Equipment
= $446060.16 - $441465
= $4595.16
Yes The company but should buy and install the machine press
Years Estimated Savings Inventory Net savings PV of 8 % Factor PV of Savings Tax 30 % PV of Net Savings 1 $195,000 $2,600 $192,400 0.9259 $178,143.16 $53,442.95 $124,700.21 2 $195,000 $2,600 $192,400 0.8573 $164,944.52 $49,483.36 $115,461.16 3 $195,000 $2,600 $192,400 0.7938 $152,727.12 $45,818.14 $106,908.98 4 $195,000 $2,600 $192,400 0.735 $141,414.00 $42,424.20 $98,989.80 Total $446,060.16Related Questions
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