Question

LMN Co. is considering a four-year project to improve its production efficiency. Buying a new machine for $536,680 is estimated to result in $199,833 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 $69,265. The press also requires an initial investment in spare parts inventory of $22,611, along with an additional $3,788 in inventory for each succeeding year of the project, with full recovery at the end of year 4. If the shop's tax rate is 39 percent and its discount rate is 12 percent, what is the NPV? (use MACRS depreciation table listed below)

Year MACRS Percentage

1 20.00%   

2 32.00   

3 19.20   

4 11.52   

5 11.52   

6 5.76   

Answer 1