, what is the present value of the tax shield if the inflation rate is 6 percent. Refer to Exhibit A for format. 15-22 The Oakland Naval Shipyard bought machine 1 on March 5, Year 1, for $5,000 cash.

The estimated salvage was $0, and the estimated life was 1 1 years. On March 5, Year 2, the shipyard learned that it could purchase a different machine for $6,000 cash.

The new machine would save the shipyard an estimated $3(X) per year compared to machine 1. The new machine would have no estimated salvage value and an estimated life of 10 years. The shipyard could get $3,000 for machine 1 on March 5, Year 2. As a government agency, the shipyard pays no taxes.

a. Which of the following calculations would best assist the shipyard in deciding whether to purchase the new machine?

h. Calculate the net present value of the purchase of the new machine using differential costs. Assume a 12 percent discount rate. (Refer to Illustration 15-10

, Appendix B, for annuity factors.)

c. Should the Oakland Naval Shipyard invest in the new machine?

Transcribed Image Text:

(1) Present value of $300 savings per year + $3,000 - $6,000. (2) Present value of $300 savings per year - $6,000. - - (3) Present value of $300 savings per year + $3,000 $6,000 $5,000. $3,000 - $6,000 (4)