Question

Purple Haze Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $494,399 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 $85,003. The OCFs of the project during the 4 years are $174,121, $191,013, $176,083 and $162,508, respectively. The press also requires an initial investment in spare parts inventory of $28,481, along with an additional $2,162 in inventory for each succeeding year of the project. The shop's discount rate is 6 percent. What is the NPV for this project?

Answer 1

2 3 $176,083.00 $174,121.00 $191,013.00 $162,508.00 -$494,399.00 -$28,481.00 -$2,162.00 -$2,162.00 -$2,162.00 $34,967.00 YEAR annual operating cash flow initial investment: plant working capital after tax salvage value: plant Cash flows pv @ 6% PRESENT VALUE $173,921.00 -$522,880.00 1 $522,880.00 $177,198.65 $171,959.00 0.9434 $162,225.47 $188,851.00 0.8900 $168,076.72 $85,003.00 $282,478.00 0.7921 $223,749.03 $146,027.43 NPV