Question

Purple Haze Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $490,722 is estimated to result in some amount of annual pretax cost savings. The press will have an aftertax salvage value at the end of the project of $85,295. The OCFs of the project during the 4 years are $172,042, $198,396, $177,620 and $162,472, respectively. The press also requires an initial investment in spare parts inventory of $24,467, along with an additional $3,816 in inventory for each succeeding year of the project. The shop's discount rate is 9 percent. What is the NPV for this project? (Round your final answer to the nearest dollar amount. Omit the "$" sign and commas in your response. For example, $123,456.78 should be entered as 123457.)

Answer 1

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Working Operating Working capital Year Investment capital cash flows O S (490,722) $ (24,467)| Total cash flows PVIF@9%Present value 1.000 $ 0.917 $ 0.842 $ 0.772 $ recovered $ (515,189.00) (515,189) $(3,816) $172,042 $ (3,816) $198,396 (3,816) $177,620 4 $85,295 $ (3,816)$162,472 $ $ 1 168,226.00 154,336 $ 194,580.00 2 163,774 $ 3 173,804.00 134,209 0.708 $ 39,731 $ 283,682.00 200,967 Net present value $138,097