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Ilana industries inc needs a new lathe. It can buy a new high-speed lathe for $1million. The lathe will cost $35,000 per year to run, but will save the firm $125,000 in labor costs, and will be useful

Ilana industries inc needs a new lathe. It can buy a new high-speed lathe for $1million. The lathe will cost $35,000 per year to run, but will save the firm $125,000 in labor costs, and will be useful for 10 years. Suppose that for tax purposes, the lathe will be depreciated on a straight-line basis over its 10-year life to a salvage value of $100,000. The actual market value of the lathe at that time also will be $100,000. The discount rate is 8% and the corporate rate is 35%. What is the NPV of buying the new lathe?

 

May 02 2021 View more View Less

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