The RHPS Corporation specializes in the custom design, cutting, and polishing of stone raw materials to...
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The RHPS Corporation specializes in the custom design, cutting, and polishing of stone raw materials to make ornate building facings. These stone facings are commonly used in the restoration of older mansions and estates. Janet Weiss and Brad Majors, managers of the firm, are evaluating the addition of a new stone-cutting machine to their plant. The machine's cost to RHPS is $150,000. Installation and calibration costs will be $7,500. They do not anticipate an increase in sales, but the reduction in the operating expenses is estimated to be $50,000 annually. The machine falls under the MACRS three-year depreciation schedule. The machine is expected to be obsolete after five years. At the end of five years, Weiss and Majors expect the cash received (less applicable capital gains taxes) from the sale of the obsolete machine to offset the shutdown and dismantling costs. The RHPS cost of capital is 10 percent, and the marginal tax rate is 35 percent. a. Calculate the net present value for the addition of this new machine. Round all calculations to the nearest whole dollar. b. Would you recommend that Weiss and Majors go forward with this project? The RHPS Corporation specializes in the custom design, cutting, and polishing of stone raw materials to make ornate building facings. These stone facings are commonly used in the restoration of older mansions and estates. Janet Weiss and Brad Majors, managers of the firm, are evaluating the addition of a new stone-cutting machine to their plant. The machine's cost to RHPS is $150,000. Installation and calibration costs will be $7,500. They do not anticipate an increase in sales, but the reduction in the operating expenses is estimated to be $50,000 annually. The machine falls under the MACRS three-year depreciation schedule. The machine is expected to be obsolete after five years. At the end of five years, Weiss and Majors expect the cash received (less applicable capital gains taxes) from the sale of the obsolete machine to offset the shutdown and dismantling costs. The RHPS cost of capital is 10 percent, and the marginal tax rate is 35 percent. a. Calculate the net present value for the addition of this new machine. Round all calculations to the nearest whole dollar. b. Would you recommend that Weiss and Majors go forward with this project?
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a To calculate the net present value NPV of the project we need to find the present value of the cas... View the full answer
Related Book For
Horngrens Financial and Managerial Accounting
ISBN: 978-0133866292
5th edition
Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura
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