Question

Your answer is partially correct. Crane Lumber, Inc., is considering purchasing a new wood saw that costs $55,000. The saw will generate revenues of $100,000 per year for five years. The cost of materials and labor needed to generate these revenues will total $60,000 per year, and other cash expenses will be $10,000 per year. The machine is expected to sell for $4,800 at the end of its five-year life and will be depreciated ona straight-line basis over five years to zero. Crane's tax rate is 34 percent, and its opportunity cost of capital is 14.00 percent. What is the project's NPV? (Do not round intermediate calculations. Round final answer to the nearest whole dollar, e.g. 5,275.) Excel Template (Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen for easy reference to the values you've been given here, and be sure to update any values that may have been pre-entered in the template based on the textbook version of the problem.) NPV $ 25814.73 Should the company purchase the saw? the machine. The company should buy

Answer 1

101: New wood saw = $ 55,000 Revenue = $100,000 Cost of material - $ 60,000 cash expense = $10,000 Salvage Value = $4,800 Tad sate = 34% Discount sate = 14% cash flow [year 1-5 Revenue = 100,000 D) cost of Material = 160,000) Do Cash Fibense = ( 10,000) 30,000 Depsuciation = 55,000] (1,000) G- - 19,000 - Tax @зч, (6460) 12540 11.000 (t) Depreciation cash flow lys 1-5] 23540

Additional cash flow at yr. 5 Salvage haluce - $4,800 LA Tax @ 347. (1,632) 3168 year Cash flow PUAF@ 14% Present Value (55,000) (55,000) 1-5 23,540 3-43308097 80814.726 5 3168 0 78172M1929% 1645.36 0 519 3687 Net Present 27460.09 value The company should buy the machine