Question
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Massey Machine Shop is considering a four year project to improve its production efficiency. Buying a...
Massey Machine Shop is considering a four year project to improve its production efficiency. Buying a new machine press for $730,000 is estimated to result in $220,000 in annual pretax cost savings. The press falls in the MACRS five year class, and it will have a salvage value at the end of the project of $89,000. The press also requires an initial investment in spare parts inventory of $26,000, along with an additional $3,000 in inventory for each succeeding year of the project. At the end of the project, all the investment in the inventory will be recaptured. The shop’s tax rate is 40 percent and its discount rate is 9 percent
. What is the operating cash inflows at t=1?
. What is the total cash inflows (operating cash flows plus terminal cash flows) at t=4?
. Compute the NPV of the project.
. Compute the IRR of the project.
. Compute the payback period of the project.
Solutions
Expert Solution
Operating Cash Flow at t=1 is $187,400
Total Cash Flows at t=4 is 304,496
NPV of the Project is -$38,234.09
IRR of the Project is 6.82%
Payback Periof of the project is 3.53 years
jeff jeffy answered 1 year agoRelated Solutions
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