Chapman Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new...

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Chapman Machine Shop is considering a 4-year project to improveits production efficiency. Buying a new machine press for $576,000is estimated to result in $192,000 in annual pretax cost savings.The press falls in the MACRS 5-year class, and it will have asalvage value at the end of the project of $84,000. The press alsorequires an initial investment in spare parts inventory of $24,000,along with an additional $3,600 in inventory for each succeedingyear of the project. The inventory will return to its originallevel when the project ends. The shop's tax rate is 35% and itsdiscount rate is 11%. Should the firm buy and install the machinepress?
Part two! the needed one....
Assume that Chapman machineshop is expected to grow at a rate of 3% after year 4. If the valueof debt is $150,000, and there are 50,000 shares outstanding, whatis the price per share of Chapman’s common stock?

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4.5 Ratings (989 Votes)

Depreciation year 1 576000 020 115200 Year 2 576000 032 184320 Year 3 576000 01920 110592 Year 4 576000 01152 6635520 Book value at end of year 4 See Answer

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Chapman Machine Shop is considering a 4-year project to improveits production efficiency. Buying a new machine press for $576,000is estimated to result in $192,000 in annual pretax cost savings.The press falls in the MACRS 5-year class, and it will have asalvage value at the end of the project of $84,000. The press alsorequires an initial investment in spare parts inventory of $24,000,along with an additional $3,600 in inventory for each succeedingyear of the project. The inventory will return to its originallevel when the project ends. The shop's tax rate is 35% and itsdiscount rate is 11%. Should the firm buy and install the machinepress?Part two! the needed one....Assume that Chapman machineshop is expected to grow at a rate of 3% after year 4. If the valueof debt is $150,000, and there are 50,000 shares outstanding, whatis the price per share of Chapman’s common stock?