Chapman Machine Shop Is Considering a 4-Year Project to Improve

question 94

Multiple Choice

Chapman Machine Shop is considering a 4-year project to improve its production efficiency.Buying a new machine press for $576,000 is estimated to result in $192,000 in annual pretax cost savings.The press falls in the MACRS 5-year class,and it will have a salvage value at the end of the project of $84,000.The press also requires an initial investment in spare parts inventory of $24,000,along with an additional $3,600 in inventory for each succeeding year of the project.The inventory will return to its original level when the project ends.The shop's tax rate is 35 percent and its discount rate is 11 percent.Should the firm buy and install the machine press? Why or why not?

• A)no; The net present value is -$7,489.
• B)no; The net present value is -$667.
• C)yes; The net present value is $211.
• D)yes; The net present value is $4,319.
• E)yes; The net present value is $8,364.

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Definitions:

Company Books Adjustment

The process of making corrections or changes to the financial records of a business to reflect accurate financial positions.

Internal Control

A method deployed by a business to maintain the accuracy of finance and accounting data, achieve operational and profitability goals, and disseminate management strategies across the company.

Information And Communication

Systems and processes used to collect, process, store, and distribute information for facilitating decision making and control in an organization.

Business Goals

Objectives or targets that a company aims to achieve, which can be short-term or long-term, and are part of strategic planning.