A. decrease in the next quarter's revenue
B. decrease in the next quarter's net income
C. loss of a major customer which lowers the firm's outlook for the next few years
D. major lump sum cash outflow next month to settle a class action product liability
lawsuit on a product that is no longer produced
E. decrease in the number of new projects under consideration as compared to last year
Chapman Machine Shop is considering a 4-year project to improve its production
efficiency. Buying a new machine press for $576,000 is estimated to result in $192,000
in annual pretax cost savings. The press falls in the MACRS 5-year class, and it will
have a salvage value at the end of the project of $84,000. The press also requires an
initial investment in spare parts inventory of $24,000, along with an additional $3,600
in inventory for each succeeding year of the project. The inventory will return to its
original level when the project ends. The shop's tax rate is 35 percent and its discount
rate is 11 percent. Should the firm buy and install the machine press? Why or why not?
A. no; The net present value is -$7,489.
B. no; The net present value is -$667.
C. yes; The net present value is $211.
D. yes; The net present value is $4,319.
E. yes; The net present value is $8,364.