Starset Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new...

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Starset Machine Shop is considering a 4-year project to improveits production efficiency. Buying a new machine press for $440,000is estimated to result in $178,000 in annual pretax cost savings.The press falls in the 5-year MACRS class, and it will have asalvage value at the end of the project of $72,000. The press alsorequires an initial investment in spare parts inventory of $31,000,along with an additional $3,650 in inventory for each succeedingyear of the project. The shop’s tax rate is 21 percent and itsdiscount rate is 12 percent. (MACRS schedule)
Calculate the NPV of this project. (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)
Should the company buy and install the machine press? No Yes

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4.3 Ratings (998 Votes)

book value of press at end of 4 years 440000 accumulateddepreciation 440000 363968 See Answer

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Starset Machine Shop is considering a 4-year project to improveits production efficiency. Buying a new machine press for $440,000is estimated to result in $178,000 in annual pretax cost savings.The press falls in the 5-year MACRS class, and it will have asalvage value at the end of the project of $72,000. The press alsorequires an initial investment in spare parts inventory of $31,000,along with an additional $3,650 in inventory for each succeedingyear of the project. The shop’s tax rate is 21 percent and itsdiscount rate is 12 percent. (MACRS schedule)Calculate the NPV of this project. (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)Should the company buy and install the machine press? No Yes