Purple Haze Machine Shop is considering a four-year project to improve its produ
ID: 2786752 • Letter: P
Question
Purple Haze Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $533362 is estimated to result in some amount of annual pretax cost savings. The press will have an aftertax salvage value at the end of the project of $85754. The OCFs of the project during the 4 years are $175948, $195683, $171329 and $169667, respectively. The press also requires an initial investment in spare parts inventory of $28807, along with an additional $4312 in inventory for each succeeding year of the project. The shop's discount rate is 10 percent. What is the NPV for this project?
Explanation / Answer
1/(1+.1)^n Year Capital (outflow)/inflow Spares Outflow OCF Net Inflow Dis. Rate 10% PV 0 (5,33,362) (28,807) (5,62,169) 1.00000 (5,62,169) 1 (4,312) 1,75,948 1,71,636 0.90909 1,56,033 2 (4,312) 1,95,683 1,91,371 0.82645 1,58,158 3 (4,312) 1,71,329 1,67,017 0.75131 1,25,482 4 85,754 (4,312) 1,69,667 2,51,109 0.68301 1,71,511 Net Present value 49,015
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