Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
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Question
9
![Blana Industries Inc. needs a new lathe. It can buy a new high-speed lathe for $1.5 million. The lathe will cost $50,000 per year to run.
but it will save the firm $160,000 in labor costs and will be useful for 10 years. Suppose that for tax purposes, the lathe is entitled to
100% bonus depreciation. At the end of the 10 years, the lathe can be sold for $400,000. The discount rate is 10%, and the corporate
tax rate is 21%. What is the NPV of buying the new lathe? (A negative amount should be indicated by a minus sign. Enter your
answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places.)
Answer is complete but not entirely correct.
(538,450-49)
NPV](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F271b00bc-75b2-47db-8d97-f3cf434d15a8%2F78366d41-768a-4169-93b8-015635637cad%2Fcqn9i8i_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Blana Industries Inc. needs a new lathe. It can buy a new high-speed lathe for $1.5 million. The lathe will cost $50,000 per year to run.
but it will save the firm $160,000 in labor costs and will be useful for 10 years. Suppose that for tax purposes, the lathe is entitled to
100% bonus depreciation. At the end of the 10 years, the lathe can be sold for $400,000. The discount rate is 10%, and the corporate
tax rate is 21%. What is the NPV of buying the new lathe? (A negative amount should be indicated by a minus sign. Enter your
answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places.)
Answer is complete but not entirely correct.
(538,450-49)
NPV
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