Question
Disraeli Gears Inc. manufactures latke-shaped gears. The company is considering the purchase of a new machine press for $672,000. The press has a four-your life
Disraeli Gears Inc. manufactures latke-shaped gears. The company is considering the purchase of a new machine press for $672,000. The press has a four-your life and is estimated to result in $224,000 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 $98,000. The press also requires an initial investment of $28,000 in spare parts for inventory. An additional $4,200 in inventory will be required for each succeeding year of the project. All investments in inventory will be recovered at the end of the project. |
If the shop's tax rate is 34 percent and its discount rate is 15 percent, what is the NPV for this project? (Do not round your intermediate calculations.) |
HINT: Calculate the depreciation for each year and use it to get the after tax-salvage value. Next, calculate OCF using the annual depreciation and then construct CFFA for each year. Now discount all cash flows to get the NPV. |
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