Question

CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $413,000 is estimated to result in $153,000 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 $54,000. The press also requires an initial investment in spare parts inventory of $15,900, along with an additional $2,900 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.)

Answer 1

F11 : X - B A C I fix D Operating cash flows Tax@24% 10 Year PBT 11 0 12 1 153,000 13 2 153,000 14 3 153,000 15 4 153,000 16 5 153,000 17 =-413000*(1-24%) E F G H Net working After-tax PVIF@11 capital Investment cash flow $ -15,900 (313,880) $ (329,780) 1.000 $ $ -2,900 $ 113,380 0.901 $ $ -2,900 $ 113,380 0.812 $ % -2,900 $ 113,380 0.731 $ % -2,900 $ 113,380 0.659 $ $ 27,500 $ 41,040 $ 184,820 0.593 $ =54000*(1-24%) 36,720 36,720 36,720 36,720 36,720 116,280 116,280 116,280 116,280 116,280 Present value (329,780.00) 102,144.14 92,021.75 82,902.48 74,686.92 109,681.67 Net present value (NPV) 1,656.97

*Please rate thumbs up