Cost-cutting proposals, Cost-Cutting Proposals [LO2]

Cost-cutting proposals

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Reference no: EM13913457

Problem 10-19 Cost-Cutting Proposals [LO2] Warmack Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $450,000 is estimated to result in $180,000 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 $76,000. The press also requires an initial investment in spare parts inventory of $18,000, along with an additional $2,300 in inventory for each succeeding year of the project. The shop’s tax rate is 35 percent and its discount rate is 9 percent. MACRS schedule Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ 672,417.77 Should the company buy and install the machine press?

Reference no: EM13913457

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