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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

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    https://brainmass.com/business/capital-budgeting/net-present-value-of-investment-in-machine-318093

    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

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