Ilana Industries Inc. needs a new lathe. It can buy a new high-speed lathe for $1.5 million. The lathe will cost $50,000 per year to run, but it will save the firm $160,000 in labor costs and will be useful for 10 years. Suppose that for tax purposes, the lathe is entitled to 100% bonus depreciation. At the end of the 10 years, the lathe can be sold for $400,000. The discount rate is 10%, and the corporate tax rate is 21%. What is the NPV of buying the new lathe? (A negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places.)
Description | Comments | Y1 | Y2 | Y3 | Y4 | Y5 | Y6 | Y7 | Y8 | Y9 | Y10 |
lathe Mach Purchase cost | $ -15,00,000 | ||||||||||
Operating Cost | $ -50,000 | $ -50,000 | $ -50,000 | $ -50,000 | $ -50,000 | $ -50,000 | $ -50,000 | $ -50,000 | $ -50,000 | $ -50,000 | |
Labour Savings | $ 1,60,000 | $ 1,60,000 | $ 1,60,000 | $ 1,60,000 | $ 1,60,000 | $ 1,60,000 | $ 1,60,000 | $ 1,60,000 | $ 1,60,000 | $ 1,60,000 | |
Depreciation | $ -3,00,000 | $ -3,00,000 | $ -3,00,000 | $ -3,00,000 | $ -3,00,000 | $ -3,00,000 | $ -3,00,000 | $ -3,00,000 | $ -3,00,000 | $ -3,00,000 | |
PBT | $ -1,90,000 | $ -1,90,000 | $ -1,90,000 | $ -1,90,000 | $ -1,90,000 | $ -1,90,000 | $ -1,90,000 | $ -1,90,000 | $ -1,90,000 | $ -1,90,000 | |
Tax | 21% | $ -39,900 | $ -39,900 | $ -39,900 | $ -39,900 | $ -39,900 | $ -39,900 | $ -39,900 | $ -39,900 | $ -39,900 | $ -39,900 |
PAT | $ -1,50,100 | $ -1,50,100 | $ -1,50,100 | $ -1,50,100 | $ -1,50,100 | $ -1,50,100 | $ -1,50,100 | $ -1,50,100 | $ -1,50,100 | $ -1,50,100 | |
Operating Cash Flows | $ 1,49,900 | $ 1,49,900 | $ 1,49,900 | $ 1,49,900 | $ 1,49,900 | $ 1,49,900 | $ 1,49,900 | $ 1,49,900 | $ 1,49,900 | $ 1,49,900 | |
Slavge value | $ 4,00,000 | ||||||||||
Net Project Cash Flows | $ -13,50,100 | $ 1,49,900 | $ 1,49,900 | $ 1,49,900 | $ 1,49,900 | $ 1,49,900 | $ 1,49,900 | $ 1,49,900 | $ 1,49,900 | $ 5,49,900 | |
NPV @10% | $ -2,88,348 |
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