Question

CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $405,000 is estimated to result in $149,000 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 $50,000. The press also requires an initial investment in spare parts inventory of $15,500, along with an additional $2,500 in inventory for each succeeding year of the project. The shop's tax rate is 25 percent and its discount rate is 12 percent. Calculate the project's NPV. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV

Answer 1

NPV

41769.84

Year	Initial cost	tax shield= Tax rate*Initial cost	EBIT*(1-Tax rate)	Working capital	Salvage	Net cash flow
0	-405000			-15500		-420500
1		101250	111750	-2500		210500
2			111750	-2500		109250
3			111750	-2500		109250
4			111750	23000	37500	172250

AutoSaver HD Book1 - Excel Sign in 0 X File Home Insert Draw Page Layout Formulas Data Review View Help Tell me what you want to do Comments - 10 A = = 0 Calibri BIU - B -A A - = E insert - Delete - Format - Share AY O Sort & Find & Filter - Select Editing Paste General 3$ -% Number - , Conditional Format as Formatting Table - Styles Cell Styles Font Alignment Cells Clipboard 024 N W O P Q R Year Initial cost tax shield= Tax rate*Initial cost EBIT*(1-Tax rate) S T Working capital Salvage Net cash flow 0 -405000 =25%*405000 -15500 SUM(P20:120) =149000*(1-25%) 2500 =SUM(P21:121) =149000*(1-25%) 2500 =SUM(P22:122) =149000*(1-25%) 2500 =SUM(P23:123) =149000*(1-25%) --SUM(S20:523) =50000*(1-25%) =SUM(P24:T24) NPV =NPV(12%,U21:024)+U20 Sheets Sheet7 Sheet8 Sheet9 Sheet10 ... Sheet2 Sheets Sheet3 Sheet5 Select destination and press ENTER or choose Paste E O -- ENG + 100% 0 Q A 10:11 AM