CCNY, Inc. is considering the acquistition of a new left-handed press. The base price of...
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CCNY, Inc. is considering the acquistition of a new left-handed press. The base price of the press is indicated below. In addition there are modification costs, noted below, for CCNY's special use. The press falls into the MACRS 3-year class. CCNY will assume a salvage value of $0 for the purposes of depreciating the asset. The new press is expected to speed up production and result in an increase in gross annual sales and an increase in annual variable costs as noted below. Inventories, accounts payable, and accounts receivable are all expected to increase (as noted) to support the heightened activity. The press will be sold after three years for the given sales price. The tax rate and appropriate discount rate are noted. Find the NPV of this project and indicate if the press should be purchased.
Base Price
$3,837,822
modification costs
$45,270
Variable cost increase
$1,358,100
Gross Sales increase
$2,716,200
Sales Price at end of Year 3
$1,149,383
Accounts receivable change
$203,715
Inventory Change
$54,324
Accounts payable change
$280,674
Discount rate
12%
Tax rate
30%
NPV
Purchase (yes or no)
Answer & Explanation
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