Question
In: Finance
XYZ company is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs...
XYZ company is considering a new machine that costs $250,000 and
would reduce pre-tax manufacturing costs by $90,000 annually. XYZ
would use the 3-year MACRS method to depreciate the machine, and
management thinks the machine would have a value of $23,000 at the
end of its 5-year operating life. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The net operating Working capital would
increase by $25,000 initially, but it would be recovered at the end
of the project's 5-year life. XYZ’s marginal tax rate is
40-percent, and a 10 percent WACC is appropriate for the project.
(Please do not use excel)
a) Calculate the projects NPV, IRR, and Payback.
b) Assume management is unsure about the $90,000 cost-savings-this figure could deviate by as much as plus or minus 20%. What would have the NPV be under each of these situations?
Solutions
jeff jeffy answered 2 months agoRelated Solutions
XYZ company is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs...
XYZ company is considering a new machine that costs $250,000 and
would reduce pre-tax manufacturing costs by $90,000 annually. XYZ
would use the 3-year MACRS method to depreciate the machine, and
management thinks the machine would have a value of $23,000 at the
end of its 5-year operating life. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The net operating Working capital would
increase by $25,000 initially, but it would be recovered at the end
of the project's...
XYZ company is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs...
XYZ company is considering a new machine that costs $250,000 and
would reduce pre-tax manufacturing costs by $90,000 annually. XYZ
would use the 3-year MACRS method to depreciate the machine, and
management thinks the machine would have a value of $23,000 at the
end of its 5-year operating life. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The net operating Working capital would
increase by $25,000 initially, but it would be recovered at the end
of the project's...
Holmes Manufacturing is considering a new machine that costs $250,000 and would reduce pre-tax manufacturing costs...
Holmes Manufacturing is considering a new machine that costs
$250,000 and would reduce
pre-tax manufacturing costs by $90,000 annually. Holmes would use
the 3-year MACRS
method to depreciate the machine, and management thinks the machine
would have a value
of $25,000 at the end of its 5-year operating life. The applicable
depreciation rates are 33%,
45%, 15%, and 7%. Net operating working capital would increase by
$25,000 initially, but
it would be recovered at the end of the project's 5-year...
XYZ company is considering a new machine that costs $300,000 and would reduce pre-tax manufacturing costs...
XYZ company is considering a new machine that costs $300,000 and
would reduce pre-tax manufacturing costs by $108,000 annually. XYZ
would use the 3-year MACRS method to depreciate the machine, and
management thinks the machine would have a value of $23,000 at the
end of its 5-year operating life. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The net operating working capital (NOWC)
would increase by $25,000 initially, but it would be recovered at
the end of the...
Madison Manufacturing is considering a new machine that costs $350,000 and would reduce pre-tax manufacturing costs...
Madison Manufacturing is considering a new machine that costs
$350,000 and would reduce pre-tax manufacturing costs by $110,000
annually. Madison would use the 3-year MACRS method to depreciate
the machine, and management thinks the machine would have a value
of $33,000 at the end of its 5-year operating life. The applicable
depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. Working
capital would increase by $35,000 initially, but it would be
recovered at the end of the project's 5-year life. Madison's...
Madison Manufacturing is considering a new machine that costs $350,000 and would reduce pre-tax manufacturing costs...
Madison Manufacturing is considering a new machine that costs
$350,000 and would reduce pre-tax manufacturing costs by $110,000
annually. Madison would use the 3-year MACRS method to depreciate
the machine, and management thinks the machine would have a value
of $33,000 at the end of its 5-year operating life. The applicable
depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. Working
capital would increase by $35,000 initially, but it would be
recovered at the end of the project's 5-year life. Madison's...
Madison Manufacturing is considering a new machine that costs $350,000 and would reduce pre-tax manufacturing costs...
Madison Manufacturing is considering a new machine that costs
$350,000 and would reduce pre-tax manufacturing costs by $110,000
annually. Madison would use the 3-year MACRS method to depreciate
the machine, and management thinks the machine would have a value
of $33,000 at the end of its 5-year operating life. The applicable
depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. Working
capital would increase by $35,000 initially, but it would be
recovered at the end of the project's 5-year life. Madison's...
Madison Manufacturing is considering a new machine that costs $350,000 and would reduce pre-tax manufacturing costs...
Madison Manufacturing is considering a new machine that costs
$350,000 and would reduce pre-tax manufacturing costs by $110,000
annually. Madison would use the 3-year MACRS method to depreciate
the machine, and management thinks the machine would have a value
of $33,000 at the end of its 5-year operating life. The applicable
depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. Working
capital would increase by $35,000 initially, but it would be
recovered at the end of the project's 5-year life. Madison's...
Madison Manufacturing is considering a new machine that costs $350,000 and would reduce pre-tax manufacturing costs...
Madison Manufacturing is considering a new machine that costs
$350,000 and would reduce pre-tax manufacturing costs by $110,000
annually. Madison would use the 3-year MACRS method to depreciate
the machine, and management thinks the machine would have a value
of $33,000 at the end of its 5-year operating life. The applicable
depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%, as
discussed in Appendix 11A. Working capital would increase by
$35,000 initially, but it would be recovered at the end of...
Madison Manufacturing is considering a new machine that costs $350,000 and would reduce pre-tax manufacturing costs...
Madison Manufacturing is considering a new machine that costs
$350,000 and would reduce pre-tax manufacturing costs by $110,000
annually. Madison would use the 3-year MACRS method to depreciate
the machine, and management thinks the machine would have a value
of $33,000 at the end of its 5-year operating life. The applicable
depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. Working
capital would increase by $35,000 initially, but it would be
recovered at the end of the project's 5-year life. Madison's...
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