Question

Starset Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $420,000 is estimated to result in $166,000 in annual pretax cost savings. The press qualifies for 100 percent bonus depreciation, and it will have a salvage value at the end of the project of $66,000. The press also requires an initial investment in spare parts inventory of $27,000, along with an additional $3,450 in inventory for each succeeding year of the project. The shop’s tax rate is 22 percent and its discount rate is 9 percent. Calculate the NPV of this project.

Answer 1

The computation of the net present value is determined by using an excel spreadsheet which is shown below:

Use the following formulas