Question

CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $395,000 is estimated to result in $144,000 in annual pretax cost savings. The press qualifies for 100 percent bonus depreciation, and it will have a salvage value at the end of the project of $45,000. The press also requires an initial investment in spare parts inventory of $15,000, along with an additional $2,000 in inventory for each succeeding year of the project. The shop's tax rate is 22 percent and its discount rate is 11 percent. What is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Net present value

Answer 1

Net Present Value
year	Initial Cash flow	Dep	NOI	Tax	Cash flow **	Discount 11%	Present Value
0	-410000				-410000	1	-410000
0	-2000				-2000	1	-2000
1	144000	365000	-221000	-48620	192620	0.9009	173531.358
2	144000		144000	31680	112320	0.8116	91158.912
3	144000		144000	31680	112320	0.7312	82128.384
4	144000		144000	31680	112320	0.6587	73985.184
Salvage	45000		45000	9900	35100	0.6587	23120.37
Inventory	2000				2000	0.6587	1317.4
Net Present Value							33241.61

**Cash flow = NOI - TAX + DEPRECIATION