Question

Starset Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $455,000 is estimated to result in $187,000 in annual pretax cost savings. The press falls in the 5-year MACRS class, and it will have a salvage value at the end of the project of $75,000. The press also requires an initial investment in spare parts inventory of $34,000, along with an additional $3,800 in inventory for each succeeding year of the project. The shop’s tax rate is 24 percent and its discount rate is 9 percent. (MACRS schedule)

NPV:

Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Should the company buy and install the machine press?

Yes No

Answer 1