CSM Machine Shop is considering a four-year project to improve its production ef
ID: 2642033 • Letter: C
Question
CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $545,000 is estimated to result in $197,000 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $70,000. The press also requires an initial investment in spare parts inventory of $21,000, along with an additional $3,000 in inventory for each succeeding year of the project. The shop's tax rate is 34 percent and its discount rate is 11 percent. Requirement 1 Calculate the NPV. (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16) Net present value Requirement 2: Should the company buy and install the machine press? (Click to select)Explanation / Answer
NPV =-545000-21000+(197000*66%+545000*20%*34%)/1.11-3000/1.11+(197000*66%+545000*32%*34%)/1.11^2-3000/1.11^2+(197000*66%+545000*19.2%*34%)/1.11^3-3000/1.11^3+(197000*66%+545000*11.52%*34%)/1.11^4+(70000-(70000-545000*(11.52+5.76)%)*34%)/1.11^4+30000/1.11^4
NPV = $ 22,925.63