CSM Machine Shop is considering a four-year project to improve its production ef
ID: 2648634 • Letter: C
Question
CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $489,000 is estimated to result in $188,000 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 $57,000. The press also requires an initial investment in spare parts inventory of $21,400, along with an additional $3,400 in inventory for each succeeding year of the project. The shop
Explanation / Answer
Year New Machine Cost Saving Net of Tax Tax Saving on Dep Salvage Inventory Cash Flows PVF@12% 0 (489,000) (21,400) (510,400) 1 (510,400.00) 1 131,600 29,340 (2,380) 158,560 0.893 141,594.08 2 131,600 46,944 (2,380) 176,164 0.797 140,402.71 3 131,600 28,166 (2,380) 157,386 0.712 112,058.83 4 131,600 16,900 (2,380) 146,120 0.636 92,932.32 5 131,600 16,900 57,000 (2,380) 203,120 0.567 115,169.04 NPV 91,756.98