The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer has 6 years of remaining life. If kept, the steamer will have depreciation expenses of $400 for years. Its current book value is $2.400, and it can be sold on an Internet auction site for 54,500 at this time. Thus, the annual depreciation expense is $2.400/6=5400 per year. If the old steamer is not replaced, it can be sold for $800 at the end of its useful ife. Gilbert is considering purchasing the Side Steamer 3000, 3 higher-end steamer, which costs §8,200, and has an estimated useful Iife of 6 years with an estimated salvage value of $800. This steamer falls into the MACRS 5-years class, 50 the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The new steamer is faster and allows for an output expansion, so sales would rise by $2,000 per year: the new machine's much greater efficiency would reduce operating expenses by §1,500 per year. To support the greater sales, the new machine would require that inventories increase by $2.900, but accounts payable would simultaneously increase by $700. Gilbert's marginal federal-plus-state tax rate is 40%, and the project cost of capitalis 14%. What is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar. The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer has 6 years of remaining life. Ifkept, the steamer will have depreciation expenses of $400 for 6years. Its current book value is $2,400, and it can be sold on an Internet auction site for $4,500 atthis time. Thus, the annual depreciation expense is $2,400/6=$400 per year. If the old steamer is not replaced, it can be sold for $800 at the end of its useful life.Gilbert is considering purchasing the Side Steamer 3000, a higher-end steamer, which costs $8,200, and has an estimated useful life of 6 years with an estimatedsalvage value of $800. This steamer falls into the MACRS 5-years class, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and5.76%. The new steamer is faster and allows for an output expansion, so sales would rise by $2,000 per year; the new machine's much greater efficiency wouldreduce operating expenses by $1,500 per year. To support the greater sales, the new machine would require that inventories increase by $2,900, but accountspayable would simultaneously increase by $700. Gilbert's marginal federal-plus-state tax rate is 40%, and the project cost of capital is 14%. What is the NPV of theproject? Do not round intermediate calculations. Round your answer to the nearest dollar.

Information Provided: Remaining life = 6 years Depreciation expenses for 6 years = $400 Current book…

Answered: What is the NPV of the project? Do not…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer has 6 years of remaining life. If kept, the steamer will have depreciation expenses of $400 for years. Its current book value is $2.400, and it can be sold on an Internet auction site for 54,500 at this time. Thus, the annual depreciation expense is $2.400/6=5400 per year. If the old steamer is not replaced, it can be sold for $800 at the end of its useful ife. Gilbert is considering purchasing the Side Steamer 3000, 3 higher-end steamer, which costs §8,200, and has an estimated useful Iife of 6 years with an estimated salvage value of $800. This steamer falls into the MACRS 5-years class, 50 the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The new steamer is faster and allows for an output expansion, so sales would rise by $2,000 per year: the new machine's much greater efficiency would reduce operating expenses by §1,500 per year. To support the greater sales, the new machine would require that inventories increase by $2.900, but accounts payable would simultaneously increase by $700. Gilbert's marginal federal-plus-state tax rate is 40%, and the project cost of capitalis 14%. What is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar.

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