1.The below information is to answer the next 6question

ABC Machine Shop is considering a 5-year project to improve its production efficiency. Buying a new

machine press for $570,000 is estimated to result in $90,000 in annual pretax cost savings, $100,000 in sales,

increase $25,000 in inventory, increase 40,000 in account receivables, increase $15,000 in notes payable.

The press falls in the MACRS 5-year class (0.20, 0.32, 0.192. 0.1152, 0.1152, 0.0576) and it will have a

salvage value at the end of the project of $85,000. The shop's tax rate is 35 percent and its discount rate is 11

percent.

1.What is the initial investment?

2.What is OCF by the end of year 1?

3. What is the salvage value after tax in year 5?

4. What is the terminal CF in year 5?

Year	1	2	3	4	5
CF	$253,323.8	$193,350.4	$363,123.3	$263,223.8	$163,400.5

2. Consider the following two mutually exclusive projects:

Year	0	1	2	3	4
CFA	-$248,000	37,000	57,000	67,000	342,000
CFB	-$61,000	34,200	24,200	18,700	16,800

Note: Discount rate is 10%.

Project	A	B
Payback
Discounted payback
NPV
IRR
PI