Question

Caradoc Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $412,000 is estimated to result in $152,000 in annual pre-tax cost savings. The press falls into Class 8 for CCA purposes (CCA rate of 20% per year), and it will have a salvage value at the end of the project of $55,200. The press also requires an initial investment in spare parts inventory of $22,000, along with an additional $3,300 in inventory for each succeeding year of the project. If the shop’s tax rate is 35% and its discount rate is 9%.

 

Calculate the NPV of this project. (Do not round your intermediate calculations. Round the final answer to 2 decimal places.)

Answer 1

OP here, I finally figured it out:

PVCCATS = PV of a CCA Tax shield

PVIFA = Present Value Interest Factor of Annuity aka Annuity Factor

Yellow highlighted means input cells.

Gray highlight is the output cell.

	A	B
	Input
59	project length	4
60	initial investment	$412,000.00
61	annual pre-tax savings	$152,000.00
62	cca rate	20%
63	salvage value	$55,200.00
64	initial investment in nwc	$22,000.00
65	succeeding year inventory investment	$3,300.00
66	tax rate	35%
67	discount rate	9%
	Intermediate
	PVCCATS	$85,903.46	=(B60*B62*B66/(B62+B67))*((1+0.5*B67)/(1+B67))-(B63*B62*B66/(B62+B67))*(1/((1+B67)^B59))	<- take S = salvage value
	annual after-tax savings	$98,800.00	=B61*(1-B66)
	PVIFA	3.239719877	=(1-(1+B67)^(-B59))/B67
	NWC Recovered	$35,200.00	=B64+B65*4
	Output
	NPV	$25,338.35	=-B60-B64+B70+(B71-B65)*B72+(B63+B73)/((1+B67)^B59)
		If NPV is positive accept the project