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

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Finance

Starset Machine Shop is considering a 4-year project to improveits production efficiency. Buying a new machine press for $390,000is estimated to result in $148,000 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 $48,000. The press alsorequires an initial investment in spare parts inventory of $21,000,along with an additional $3,150 in inventory for each succeedingyear of the project. The shop’s tax rate is 21 percent and itsdiscount rate is 8 percent. (MACRS schedule) Calculate the NPV ofthis project.

MACRS schedule

Year

Three-Year

Five-YearSeven-Year
133.33%20.00%14.29%
244.45%32.00%24.49%
314.81%19.20%17.49%
47.41%11.52%12.49%
511.52%8.93%
65.76%8.92%
78.93%
84.46%

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