Question

CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $433,000 is estimated to result in $163.000 in annual pretax cost savings. The press is eligible for 100 percent bonus depreciation and it will have a salvage value at the end of the project of $64,000. The press also requires an initial investment in spare parts inventory of $16,900, along with an additional $3,900 in inventory for each succeeding year of the project. The shop's tax rate is 24 percent and its discount rate is 11 percent. Calculate the project's NPV. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ 79,253 30

Answer 1

fix --433000*0.76 E F Net Tax@24% income M J175 x A B C D Cost Deprec 174 Year savings iation PBT 175 ol 176 11 163,000 $ - 163,000 177 2 163,000 $ | 163,000 3 163,000 $ 163,000 179 4 163,000 $ - | 163.000 180 G H I Depreci Operating Net working ation cash flows capital $ 16,900 - 123.880 $ -3.900 123,880 $ -3,900 123,880 $ -3,900 - 123,880 $ 28,600 J K L After-tax PVIF@ Investment cash flow 11% (329,080) $ (345,980) 1.000 $ $ 119,980 0.901 $ $ 119,980 0.812 $ $ 119,980 0.731 $ $ 48,640 $ 201,120 0.659 $ 39,120 | 123,880 39,120 123,880 39,120 123,880 39,120 | 123,880 Present value (345,980.00) 108,090.09 97,378.46 87,728.34 132,483.97 178 Net present value $79,700.87 181 182 183 184 185 186 187 188 189 Asset cost Less: Depreciation charged WDV of machine at sale Sale value of machine Profit/(Loss) on sale Less: Tax @24% After tax salvage value $ 433,000 $ 433,000 $ - $ 64,000 $ 64,000 $ 15,360 $ 48,640

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