Problem 9-21 Cost-Cutting Proposals [LO 2] CSM Machine Shop is considering a four-year project to improve...

70.2K

Verified Solution

Question

Finance

Problem 9-21 Cost-Cutting Proposals [LO 2] CSM Machine Shop isconsidering a four-year project to improve its productionefficiency. Buying a new machine press for $491,000 is estimated toresult in $190,000 in annual pretax cost savings. The press fallsin the MACRS five-year class (MACRS Table), and it will have asalvage value at the end of the project of $58,000. The press alsorequires an initial investment in spare parts inventory of $21,600,along with an additional $3,600 in inventory for each succeedingyear of the project. The shop’s tax rate is 40 percent and itsdiscount rate is 10 percent. Calculate the NPV. (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.) Net present value $

Answer & Explanation Solved by verified expert

4.0 Ratings (656 Votes)

First we will calculate the depreciation each year which will be D1 4910002000 98200 D2 4910003200 157120 D3 4910001920 94272 D4 4910001152 56563 The book value of the equipment at the end of the project is BV4 491000 98200 157120 94272 56563 84845 The asset is sold at a loss See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Problem 9-21 Cost-Cutting Proposals [LO 2] CSM Machine Shop isconsidering a four-year project to improve its productionefficiency. Buying a new machine press for $491,000 is estimated toresult in $190,000 in annual pretax cost savings. The press fallsin the MACRS five-year class (MACRS Table), and it will have asalvage value at the end of the project of $58,000. The press alsorequires an initial investment in spare parts inventory of $21,600,along with an additional $3,600 in inventory for each succeedingyear of the project. The shop’s tax rate is 40 percent and itsdiscount rate is 10 percent. Calculate the NPV. (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.) Net present value $