Four-year project to improve its production e?ciency

Assignment Help Financial Management

Reference no: EM131087885

Geary Machine Shop is considering a four-year project to improve its production e?ciency. Buying a new machine press for $902,400 is estimated to result in $300,800 in annual pretax cost savings. The press falls in the MACRS ?ve-year class (MACRS Table), and it will have a salvage value at the end of the project of $131,600. The press also requires an initial investment in spare parts inventory of $37,600, along with an additional $5,640 in inventory for each succeeding year of the project. Required : If the shop's tax rate is 32 percent and its discount rate is 18 percent, what is the NPV for this project? Show calculator work.

Reference no: EM131087885

Questions Cloud

What is the equivalent annual annuity for each plane : Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. What is the equivalent annual annuity for each plane?

What is the value of this call option : IBM stock currently sells for 44 dollars per share. Over 5 months the price will either go up by 13.5 percent or down by -6.5 percent. The risk-free rate of interest is 7.0 percent continuously compounded. A call option with strike price 45 and matur..

Remember to subtract the cost of the option portfolio : A trader creates a long butterfly spread from options with strike prices $60, $65, and $70 by trading a total of 4 options. The options are cost $11, $14, and $18. What is the maximum profit on the position (remember to subtract the cost of the optio..

Reject these projects based on the profitability index : You are considering two mutually exclusive projects. Project A has cash flows of -$74,900, $18,400, $26,300, and $57,100 for years 0 to 3, respectively. Project B has cash flows of -$79,000, $18,400, $22,700, and $51,500 for years 0 to 3, respectivel..

Four-year project to improve its production e?ciency : Geary Machine Shop is considering a four-year project to improve its production e?ciency. Buying a new machine press for $902,400 is estimated to result in $300,800 in annual pretax cost savings. If the shop's tax rate is 32 percent and its discount ..

The conversion ratio on the bond : A convertible bond has a 6.5 percent coupon, paid semiannually, and will mature in 10 years. If the bond were not convertible, it would be priced to yield 5.5 percent. The conversion ratio on the bond is 25 and the stock is currently selling for $51 ..

Explain this difference between the market realities : The M&M theory states it does not make any difference from an economist’s view whether a firm raises financing as equity or debt. However floatation costs are more for equity than debt and interest on debt is tax deductible whereas dividends are not...

Decide on the appropiate coupon rate to set on bonds : How does a bond issuer decide on the appropiate coupon rate to set on bonds? Explain the difference between the coupon rate and the required rate of return on the bond. No plagirism please and include any references if you used them

Despite being retired from his occupation as an attorney : Matthew is 64 years old and despite being retired from his occupation as an attorney, earned $25,000 in 2015 while working as a golf instructor at a local golf course. Based on the wage history, his annual social security benefit is projected at $31..

User Account

All Pages