In: Finance
Starset Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $390,000 is estimated to result in $148,000 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 $48,000. The press also requires an initial investment in spare parts inventory of $21,000, along with an additional $3,150 in inventory for each succeeding year of the project. The shop’s tax rate is 21 percent and its discount rate is 8 percent. (MACRS schedule) Calculate the NPV of this project.
MACRS schedule
Year |
Three-Year |
Five-Year | Seven-Year |
1 | 33.33% | 20.00% | 14.29% |
2 | 44.45% | 32.00% | 24.49% |
3 | 14.81% | 19.20% | 17.49% |
4 | 7.41% | 11.52% | 12.49% |
5 | 11.52% | 8.93% | |
6 | 5.76% | 8.92% | |
7 | 8.93% | ||
8 | 4.46% |