Permanently rejecting investment project

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Reference no: EM131904015

1. Permanently rejecting an investment project today may not be a wise decision primarily because:

the size of the firm will be less than it would be with the project.

there are always errors in the estimation of NPVs.

the management team may be replaced.

the company is foregoing all future options.

the firm may not have any other investment opportunities.

2. Geary Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $720,000 is estimated to result in $240,000 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $105,000. The press also requires an initial investment in spare parts inventory of $30,000, along with an additional $4,500 in inventory for each succeeding year of the project. Required : If the shop's tax rate is 32 percent and its discount rate is 19 percent, what is the NPV for this project? (Do not round your intermediate calculations.)

$-121,588.54

$-118,690.94

$-183,779.07

$-127,667.97

$-115,509.11

Reference no: EM131904015

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