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# Net Present Value of Investment in Machine

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Stanton Inc. is considering the purchase of a new machine which will reduce manufacturing costs by \$6,000 annually and increase earnings before depreciation and taxes by \$6,000 annually. Stanton will use the MACRS method to depreciate the machine, and it expects to sell the machine at the end of its 5-year operating life for \$10,000 before taxes. Stanton's marginal tax rate is 40 percent, and it uses a 9 percent cost of capital to evaluate projects of this type. If the machine's cost is \$40,000, what is the project's NPV? [MACRS table required] Select the closest answer.

\$1,014
\$2,292
\$4,626
\$414
\$6,050

#### Solution Summary

Stanton Inc. is considering the purchase of a new machine which will reduce manufacturing costs by \$6,000 annually and increase earnings before depreciation and taxes by \$6,000 annually. Stanton will use the MACRS method to depreciate the machine, and it expects to sell the machine at the end of its 5-year operating life for \$10,000 before taxes. Stanton's marginal tax rate is 40 percent, and it uses a 9 percent cost of capital to evaluate projects of this type. If the machine's cost is \$40,000, what is the project's NPV? [MACRS table required] Select the closest answer.

\$1,014
\$2,292
\$4,626
\$414
\$6,050

\$2.49