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Problem:

Ilana Industries, Inc., needs a new lathe. It can buy a new high-speed lathe for $1.8 million. The lathe will cost $53,000 per year to run, but will save the firm $183,000 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 $500,000. The actual market value of the lathe at that time also will be $500,000. The discount rate is 12%, and the corporate tax rate is 30%.

Required:

Question: What is the NPV of buying the new lathe?

Note: Explain all calculation and formulas.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91170402

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