1. A 5-year project has an initial fixed asset investment of $30,660, an initial NWC investment of $2,920, and an annual OCF of -$46,720. The fixed asset is fully depreciated over the life of the project and has no salvage value.
Required: If the required return is 16 percent, what is the project's equivalent annual cost, or EAC? (Do not round your intermediate calculations.)
$-53,723.50
$-37,032.95
$-56,551.05
$-48,068.39
$-59,378.60
2. Geary Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $864,000 is estimated to result in $288,000 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $126,000. The press also requires an initial investment in spare parts inventory of $36,000, along with an additional $5,400 in inventory for each succeeding year of the project.
Required :
If the shop's tax rate is 34 percent and its discount rate is 10 percent, what is the NPV for this project? (Do not round your intermediate calculations.)
$12,811.73
$15,175.91
$-89,723.43
$13,452.32
$12,171.14