In: Finance
Blue Line machine shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $570,000 is estimated to result in $240,000 in annual pretax cost savings. The press falls in the MACRS five-year class and it will have a salvage value at the end of the project of $96,000. The press also requires an initial investment in spare parts inventory of $30,000, along with an additional $3,500 in inventory for each succeeding year of the project. The shop tax rate is 30 percent and the project's required return is 8 percent.
A/ Calculate the NPV of this project
B/ Should the company buy and install the machine press?