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! Required information [ The following information applies to the questions displayed below. ] VacuTech is a high - technology company that manufactures sophisticated instruments
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The following information applies to the questions displayed below.
VacuTech is a hightechnology company that manufactures sophisticated instruments for testing microcircuits. Each
instrument sells for $; variable manufacturing cost per unit all cash equals $ An essential component of the
company's manufacturing process is a sealed vacuum chamber where the interior approaches a pure vacuum. The
technology of the vacuum pumps that the firm uses to prepare its chamber for sealing has been changing rapidly. On June
VacuTech bought the latest in electronic highspeed vacuum pumps that can evacuate a chamber for sealing in
only hours. The company paid $ for the pump. Recently, the pump's manufacturer approached VacuTech with a
new pump that would reduce the evacuation time to hours.
VacuTech's management is considering the purchase of this new pump and has asked Doreen Harris, the company
controller, to evaluate the financial impact of replacing the existing pump with the new model. Doreen has gathered the
following information prior to preparing her analysis:
The new pump could be installed and placed in service on January The pump's cost is $; installing,
testing, and debugging the machine will cost $which should be capitalized The pump would be assigned to
the year class for depreciation under the Modified Accelerated Cost Recovery System MACRS and is expected to
have an $ salvage value when it is sold at the end of years. Depreciation on the equipment would be
recognized starting in and MACRS rates rounded would be as follows:
The current pump is being depreciated under MACRS and will be fully depreciated by the time the new pump is
placed in service. If the firm purchases the new pump, it will sell the current pump for a net price of $
At the current rate of production, the new pump's greater efficiency will result in annual pretax cash savings of
$
VacuTech is able to sell all testing instruments that it can produce. Because of the new pump's increased speed,
output is expected to increase by units in units in both and and units in Cashbased
manufacturing costs for all additional units would be reduced by $ per unit in addition to the $ savings
noted above
VacuTech is subject to a income tax rate. For evaluating capital investment proposals, management assumes
that annual cash flows occur at the end of the year and uses a aftertax discount rate.
Required:
Calculate the net present value NPV at January of the estimated aftertax cash flows that would result from its acquisition.
Use the builtin NPV function in Excel to estimate the NPV of the proposed investment.Negative amount should be indicated with a
minus sign. Round final answer to the nearest whole dollar.
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