High School

We appreciate your visit to Ilana Industries Inc needs a new lathe It can buy a new high speed lathe for 1 000 000 The lathe will cost 36 000. This page offers clear insights and highlights the essential aspects of the topic. Our goal is to provide a helpful and engaging learning experience. Explore the content and find the answers you need!

Ilana Industries Inc. needs a new lathe. It can buy a new high-speed lathe for $1,000,000. The lathe will cost $36,000 per year to run, but it will save the firm $123,000 in labor costs and will be useful for 11 years. Suppose that for tax purposes, the lathe will be in an asset class with a CCA rate of 25%. Ilana has many other assets in this asset class. The lathe is expected to have an 11-year life with a salvage value of $115,000. The actual market value of the lathe at that time will also be $115,000. The discount rate is 5%, and the corporate tax rate is 35%.

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 :

The NPV is negative, indicating that buying the new lathe is not financially beneficial for Ilana Industries Inc. as it would result in a net loss of $174,418.37.


To calculate the NPV, we need to determine the present value of the cash flows associated with the lathe. First, we calculate the annual savings from labor costs ($123,000) and subtract the annual operating costs ($36,000). Next, we calculate the annual depreciation using the CCA rate (25%) and the initial cost of the lathe. Then, we calculate the tax savings from depreciation by multiplying the annual depreciation by the tax rate (35%). We subtract the annual tax savings from the annual cash flows.

Using the discount rate (5%), we calculate the present value of each year's cash flow. Finally, we sum up all the present values to get the NPV. In this case, the NPV is negative, indicating that buying the new lathe is not financially beneficial for Ilana Industries Inc. as it would result in a net loss of $174,418.37.

To know more about NPV visit:

https://brainly.com/question/33284820

#SPJ11

Thanks for taking the time to read Ilana Industries Inc needs a new lathe It can buy a new high speed lathe for 1 000 000 The lathe will cost 36 000. We hope the insights shared have been valuable and enhanced your understanding of the topic. Don�t hesitate to browse our website for more informative and engaging content!

Rewritten by : Barada