0 | 1 | 2 | 3 | 4 | |||||
Annual pre-tax cost savings | $ 2,00,000 | $ 2,00,000 | $ 2,00,000 | $ 2,00,000 | Total Depreciation | Book Value at EOY 4 | |||
-Depreciation [MACRS] | $ 98,000 | $ 1,56,800 | $ 94,080 | $ 56,448 | $ 4,05,328 | $ 84,672 | |||
=Incremental operating income | $ 1,02,000 | $ 43,200 | $ 1,05,920 | $ 1,43,552 | |||||
-Tax at 34% | $ 34,680 | $ 14,688 | $ 36,013 | $ 48,808 | |||||
=Incremental NOPAT | $ 67,320 | $ 28,512 | $ 69,907 | $ 94,744 | |||||
+Depreciation | $ 98,000 | $ 1,56,800 | $ 94,080 | $ 56,448 | |||||
=Incremental OCF | $ 1,65,320 | $ 1,85,312 | $ 1,63,987 | $ 1,51,192 | |||||
-Capital expenditure | $ 4,90,000 | ||||||||
-Change in NWC | $ 22,000 | $ 2,700 | $ 2,700 | $ 2,700 | $ 2,700 | ||||
+Recovery of NWC | $ 32,800 | ||||||||
+After tax salvage value [including tax shield on loss on sale] = 82000+(84672-82000)*34% = | $ 82,908 | ||||||||
=Annual after tax cash flows [FCF] | $ -5,12,000 | $ 1,62,620 | $ 1,82,612 | $ 1,61,287 | $ 2,64,201 | ||||
PVIF at 10% [PVIF = 1/1.1^t] | 1 | 0.90909 | 0.82645 | 0.75131 | 0.68301 | ||||
PV of FCF = FCF*PVIF = | $ -5,12,000 | $ 1,47,836 | $ 1,50,919 | $ 1,21,177 | $ 1,80,453 | ||||
NPV | $ 88,386 | ||||||||
Should the company buyand install the machine press? | YES |
Ch. 8 - Problems Problem 8-11 Cost-Cutting Proposals 10 points Blue Line Machine Shop is considering...
8. Below is MACRS Schedule Problem 10-21 Cost-Cutting Proposals (LO2] Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $480,000 is estimated to result in $202,000 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 $73,000. The press also requires an initial investment in spare parts inventory of $39,000, along with...
Q 13/14 are related witount excal 13. Cost-Cutting Proposals Starset Machine Shop is clsidering a 4-year project to improve its production efficiency. Buying a new machine press for $670,000 is estimated to result in $245,000 in annual pretax cost savings. The press falls in the 5-year MACRS class, and it will have a salvage value at the end of the project of $55,000. The press also requires an initial investment in spare parts inventory of $20,000, along with an additional...
Problem 9-21 Cost-Cutting Proposals [LO 2] CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $491,000 is estimated to result in $190,000 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 $58,000. The press also requires an initial investment in spare parts inventory of $21,600, along with an additional $3,600...
Blue Line Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $420,000 is estimated to result in $165,000 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 $71,000. The press also requires an initial investment in spare parts inventory of $15,000, along with an additional $2,000 in inventory for each succeeding year of...
10 Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $390,000 is estimated to result in $148,000 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 $48,000. The press also requires an initial investment in spare parts inventory of $21,000, along with an additional $3,150 in inventory for each succeeding year of...
CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $407,000 is estimated to result in $150,000 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 $51,000. The press also requires an initial investment in spare parts inventory of $15,600, along with an additional $2,600 in inventory for each succeeding year of...
CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $415,000 is estimated to result in $154,000 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 $55,000. The press also requires an initial investment in spare parts inventory of $16,000, along with an additional $3,000 in inventory for each succeeding year...
Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $445,000 is estimated to result in $181,000 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 $73,000. The press also requires an initial investment in spare parts inventory of $32,000, along with an additional $3,700 in inventory for each succeeding year of the...
Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $470,000 is estimated to result in $196,000 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 $72,000. The press also requires an initial investment in spare parts inventory of $37,000, along with an additional $3,950 in inventory for each succeeding year of the...
Warmack Machine Shop is considering a four-year project to Improve its production efficiency. Buying a new machine press for $560,000 is estimated to result in $235,000 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 $94,000. The press also requires an Initial Investment in spare parts Inventory of $29.000, along with an additional $3,400 in Inventory for each succeeding year of the...