Ilana Industries Inc. needs a new lathe. It can buy a new high-speed lathe for $1 million. The lathe will cost $35,000 per year to run, but it will save the firm $125,000 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 $100,000. The discount rate is 8%, 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.)

The NPV of buying the new lathe is the present value of the annual cash flows minus the initial cost plus the salvage value minus the tax benefits. It is calculated by discounting the cash flows using the discount rate and considering the tax benefits.

The NPV of buying the new lathe is the difference between the present value of the cash inflows and outflows associated with the lathe. The cash inflows include the annual labor cost savings of $125,000, while the cash outflows include the annual cost to run the lathe of $35,000.

By discounting these cash flows over the 10-year useful life using a discount rate of 8%, we can calculate the present value. Additionally, we need to consider the salvage value of $100,000 at the end of 10 years and the tax benefits resulting from the 100% bonus depreciation.

Subtracting the initial cost of $1 million and adding the salvage value and tax benefits, we can determine the NPV of buying the new lathe.

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