Problem 9-21 Cost-Cutting Proposals [LO 2] CSM Machine Shop is considering a four-year project to improve its...

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Problem 9-21 Cost-Cutting Proposals [LO 2]
CSM Machine Shop is considering a four-year project to improveits production efficiency. Buying a new machine press for $491,000is estimated to result in $190,000 in annual pretax cost savings.The press falls in the MACRS five-year class (MACRS Table), and itwill have a salvage value at the end of the project of $58,000. Thepress also requires an initial investment in spare parts inventoryof $21,600, along with an additional $3,600 in inventory for eachsucceeding year of the project. The shop’s tax rate is 40 percentand its discount rate is 10 percent.

Calculate the NPV. (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)

Net present value             $

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3.6 Ratings (583 Votes)

First we will calculate the depreciation each year which will be D1 4910002000 98200 D2 4910003200 157120 D3 4910001920 94272 D4 4910001152 56563 The book value of the equipment at the end of the project is BV4 491000 98200 157120 94272 56563 84845 The asset is sold at a loss See Answer

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Problem 9-21 Cost-Cutting Proposals [LO 2]CSM Machine Shop is considering a four-year project to improveits production efficiency. Buying a new machine press for $491,000is estimated to result in $190,000 in annual pretax cost savings.The press falls in the MACRS five-year class (MACRS Table), and itwill have a salvage value at the end of the project of $58,000. Thepress also requires an initial investment in spare parts inventoryof $21,600, along with an additional $3,600 in inventory for eachsucceeding year of the project. The shop’s tax rate is 40 percentand its discount rate is 10 percent. Calculate the NPV. (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.) Net present value $