A computerized machining center has been proposed for a small tool manufacturing company. The new system, which costs $250,000.In the first year, it will generate annual revenues of $100,000 and will require $25,000 in annual labor expenses, $15,000 in annual material expenses, and another $10,000 in annual overhead (power and utility) expenses. Assume that the general inflation rate will be a 20% increase during the project period that will affect all revenues increasing by 20% per year thereafter and we except that salary for labor increase by 3% and overhead expenses will increase by 5% per year thereafter , and that cost of materials expenses will increase by 7% per year thereafter . for example ,whereas annual revenues had been estimated at $100,000, under the conditions of inflation they become 20% grater in year 2, or $120,000;and greater in year 3;and so forth. The automation facility would be classified as a seven-year MACRS property. The company expects to dispose out the facility at the end of 4th year and it will be sold for $120,000. Under these circumstances.

a) Develop the projects cash flows over its project life. In your calculations use table value.

years

7-year property%

1

14.29

2

24.29

3

17.49

4

12.49

5

8.93

6

8.92

7

8

8.93

4.48

b) Determine the net present worth (NPW) of the project at the companys MARR of 15%.

Is this project acceptable?

INCOME

STATMENT

Inflation

Rate%

0

1

2

3

4

Revenues :

Expenses:

Labor

Material

Overhead

Depreciation

Taxable Income

Income taxes (40%)

Net Income

CASH FLOW

STATEMENT

Net income

Depreciation

Investment

Salvage

Gains tax or credit

Net cash flow

Total depreciation:

Book value:

Gain(or loss):

Gain tax or credit:

PW(15%)=

PW(15%)=