Geary Machine Shop is considering a four-year project to improve its production

Question

Geary Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $720,000 is estimated to result in $240,000 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 $105,000. The press also requires an initial investment in spare parts inventory of $30,000, along with an additional $4,500 in inventory for each succeeding year of the project. Required : If the shop's tax rate is 31 percent and its discount rate is 18 percent, what is the NPV for this project? (Do not round your intermediate calculations.) rev: 09_18_2012 $-106,139.92 $-103,318.84 $-170,365.41 $-111,446.91 $-100,832.92

Explanation / Answer

The options are not matching . But I think my answer is correct.
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A B C D E Year 0 1 2 3 4 1 Initial investment -720000 2 Annual Pretax Cost Savings 240000 240000 240000 240000 3 MACRS Rate 20% 32% 19.2% 11.52% 4 Depreciation = Depreciation rate* Investment 144000 230400 138240 82944 5 EBIT = Annual Pretax cost - Depreciation 96000 9600 101760 157056 6 Tax = EBIT * Tax rate 29760 2976 31545.6 48687.36 7 Net income = EBIT -TAX 66240.00 6624.00 70214.40 108368.64 8 Depreciation 144000 230400 138240 82944 9 After Tax Salvage Value 72450 10 Working Capital -30,000 -4500 -4500 -4500 -4500 11 Total Cash flow -750,000 205740.00 232524.00 203954.40 259262.64 12 Discount rate 18% NPV of Cash flows -150791.22 NPV(18%,B11:E11)+A11

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