The Catseye Marble Co. is thinking of replacing a manual production process with a machine. The manual process requires three relatively unskilled workers and a supervisor. Each worker makes $17,500 a year and the supervisor earns $24,500. The new machine can be run with only one skilled operator who will earn $41,000. Payroll taxes and fringe benefits are an additional third of all wages and salaries.
The machine costs $150,000 and has a tax depreciation life of five years. Catseye elects straight-line depreciation for tax purposes. A service contract covers all maintenance for $5,000 a year. The machine is expected to last six years, at which time it will have no salvage value. The machine's output will be virtually indistinguishable from that of the manual process in both quality and quantity. There are no other operating differences between the manual and the machine processes. Catseye's marginal tax rate is 30%, and its cost of capital is 8%.
Calculate the incremental cash flows associated with the project to acquire the machine. Use a minus sign to indicate negative cash flows or decreases in cash, if required.
0th year CF $
1st-5th years CF (per year) $
6th year CF $
Calculate the project's payback. Round the answer to one decimal place. Do not round your intermediate calculations.
Payback Period = year(s)
Calculate the project's NPV. Round the answer to the nearest whole dollar. Do not round your intermediate calculations.
NPV = $