Chadron Motors is considering a three-year project to improve its production efficiency. Buying a new machine press for $578,000 is estimated to result in $184,000 in annual pretax cost savings. The press falls in the MACRS five-year class, which has percentage rates starting with Year 1, of 20, 32, 19.20,11.52, 11.52, and 5.76. The salvage value at the end of the project of $162,000. The press also requires an initial investment in spare parts inventory of $19,000, along with an additional $1,500 in inventory for each succeeding year of the project. The inventory will all be recovered when the project ends. If the tax rate is 35 percent and the discount rate is 12 percent, should the company buy and install the machine press? Why or why not?

• A. No; the NPV is -$64,817.58
• B. Yes; the NPV is $51,613.33
• C. Yes; the NPV is $45,602.57
• D. No; the NPV is -$52,918.78
• E. Yes; the NPV is $64,728.29

A new molding machine is expected to produce operating cash flows of $109,000 a year for 4 years. At the beginning of the project, inventory will decrease by $8,700, accounts receivables will increase by $9,500, and accounts payable will decrease by $5,200. All net working capital will be recovered at the end of the project. The initial cost of the molding machine is $319,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. No bonus depreciation will be taken. The equipment will be salvaged at the end of the project creating an aftertax cash inflow of $51,600. What is the net present value of this project given a required return of 14.5 percent?

• A. $25,162.45
• B. $24,272.87
• C. $22,878.68
• D. $21,578.21
• E. $25,529.45