Question

Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $455,000 is estimated to result in $187,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $75,000. The press also requires an initial investment in spare parts inventory of $34,000, along with an additional $3,800 in inventory for each succeeding year of the project. The shop’s tax rate is 24 percent and its discount rate is 9 percent. (MACRS schedule)

Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Answers Depreciation calculation D = 455000x 0.2 = $90000 = $145600 Dz = 455000X 0.32 By = 455000 0.192 Dy = 455000 x0.152 = $87360 = $52416 Booh value of project at the end of the project Bu = $455000 - ($91000 + $ 145600 +887360 + $ 52466) Bu - $78624 Asset sold at a loss Creating to refund After tox Salvage valve - $45000 +($78624 - $75000) 0.25 = $75869.76

Cabluate of using depreciation Shield approua OCEH = $ 187200 (1-0-24) +0.24 (491000) = $ 163960 OCF= $187000 (1-0-24) +0.24($145600) = $177064 01632 $ 18 7000 (1-0.24) +0.24 ($87360)=$163086.40 OCEG = $187000 (1-0-24) + 0.24 ($52416) - $154699-84 Networking capital adjustment $3 4000 would be deducted in year o Initially Alth that $3800 would be doducted for 3 years -СИС34 бор + 3gpoxg) = $4Х40o ute a recatred at the endy project. NPV = ($16.3.960-~$3508) 71-09 + £$177064-$ 3800) 11.8472 + $163086.40 - $3800)/(1-09)3 + $154697.24surem + $ 75869-76) 18:094 $35sace $34000 NPU $ 122 270.97 APRIL