Question

LMN Co. is considering a four-year project to improve its production efficiency. Buying a new machine for $504407 is estimated to result in $194110 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 $67960. The press also requires an initial investment in spare parts inventory of $18501, along with an additional $3020 in inventory for each succeeding year of the project, with full recovery at the end of year 4. If the shop's tax rate is 36 percent and its discount rate is 10 percent, what is the NPV? Use exact MACRS numbers. Answer in $ to two decimals.

Answer 1

10% (504,407) (18,501) (522,908) 1 Discount rate 22 Initial Investment (S) 3 Net working capital Invetsment 4 Total Initial Investment 5 6 Under MACRS method, Depreciation is 20%, 32%,19%, 12% 7 Depreciation 1 8 Depreciation 2 9 Depreciation 3 0 Depreciation 4 100,881 161,410 95,837 60,529 2 Inflow1 3 Inflow 2 4 Inflow 3 5 Inflow 4 6 7 Terminal Value 8 salvage Value + Net Working Capital 9 40 IN PV (194110-3020) (0.64)+100881 0.36 (194110-3020) (0.64)+161410 0.36 (194110-3020)"(0.64)+95837*0.36 (194110-3020)"(0.64)+60529*0.36 158,615 180,405 156,799 144,088 98,541 $47,783 14 5 Ratios d Interest amazonAmortisation scheduleSheetl eady Average: 47788.07051 Count: 2 Sum: 47788.07051 | 100% O Type here to search qJ) ENG 12:00 PM 3/8/2018 ^