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Nuff Folding Box Company, Inc. is considering purchasing a new gluing machine. The gluing machine...

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Finance

Nuff Folding Box Company, Inc. is considering purchasing a new gluing machine. The gluing machine costs $50,000 and requires installation costs of $2,500. This outlay would be partially offset by the sale of an existing gluer. The existing gluer originally cost $10,000 and is four years old. It is being depreciated under MACRS using a fiveyear recovery schedule and can currently be sold for $15,000. The existing gluer has a remaining useful life of five years. If held until year 5, the existing machine's market value would be zero. Over its fiveyear life, the new machine should reduce operating costs (excluding depreciation) by $17,000 per year. Training costs of employees who will operate the new machine will be a onetime cost of $5,000 which should be included in the initial outlay. The new machine will be depreciated under MACRS using a fiveyear recovery period. The firm has a 12 percent cost of capital and a 40 percent tax on ordinary income and capital gains.

The net present value of the project is ________.

A. $7,500

B. $3,815

C. $2,445

D. $5,614

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