Question

CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $433,000 is estimated to result in $163,000 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 $64,000. The press also requires an initial investment in spare parts inventory of $16.900. along with an additional $3,900 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.) NPV

Answer 1

Hello
As per details given in the question

Year	Cash flow	Discount rate
1	163000	$146,846.85
2	159100	$129,129.13
3	159100	$116,332.55
4	159100	$104,804.10
4	48640	$32040.67
Total inflow		$529153.30

In 4 year salvage value tax should be deducted at 24%

In each year cash flow starting from the 2 year onwards 3900 amount should be deducted additional inventory

Total outflow = 433000+16900( initial investment)
Total outflow= 449900

NPV= PV of inflow - outflow
NPV = 529153.30 - 449900 =79253.30

I hope this clear your doubt.

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