The new machine press cost 435000 and is estimated to result in 164000 in annual pretax cost savings. Press is eligible for a 100 percent bonus depreciation and will have a salvage value of 65000 at the end of the project. The press also requires an initial investment in spare parts inventory of 17000, along with an additional 4000 in inventory for each succeeding year of the project. The shop’s tax rate is 25 percent and its discount rate is 12 percent. Calculate the project’s NPV.
You are considering investing in a security that will pay you $2,000 in 35 years.
a. If the appropriate discount rate is 9 percent, what is the present value of this investment?
b. Assume these investments sell for $950 in return for which you receive $2,000 in 35 years. What is the rate of return investors earn on this investment if they buy it for $950?
Dog up! Franks is looking at a new sausage system with an installed cost of $440,000. This cost will be depreciated straight line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $51,000. The sausage system will save the firm $138,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $24,500.
If the tax rate is 22 percent and the discount rate is 10 percent, what is the NPV of this project?
