Question

Please give a step by step solution so I can solve it. Purple Haze Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $505388 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 $85930. The OCFs of the project during the 4 years are $172604, $199743, $177763 and $166182, respectively. The press also requires an initial investment in spare parts inventory of $28964, along with an additional $2167 in inventory for each succeeding year of the project. The shop's discount rate is 7 percent. What is the NPV for this project?

Answer 1

	Year	0	1	2	3	4	NPV
	Initial Investment	-505388
	Working capital investment	-31131
	OCF		172604	199743	177763	166182
Less	Depriciation		126347	126347	126347	126347
	EBIT		46257	73396	51416	39835
less	tax - not given		0	0	0	0
add	salvag value as it is after tax					85390
	EAT		46257	73396	51416	125225
add	Depriciation		126347	126347	126347	126347
	Cash flow after tax	-536519	172604	199743	177763	251572
	Discounting @ 7%	1	0.934579	0.873439	0.816298	0.762895
	Present value	-536519	161312.1	174463.3	145107.6	191923.1	136287.1

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