# Computerized Machining Center

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 project’s cash flows over its project life. In your calculations use table value.
years7-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 company’s MARR of 15%.
Is this project acceptable?
INCOME
STATMENT
Inflation
Rate%
0
1
2
3
4
Revenues :
Expenses:
Labor
Material
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%)=