Question

Blue Line Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $420,000 is estimated to result in $165,000 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 $71,000. The press also requires an initial investment in spare parts inventory of $15,000, along with an additional $2,000 in inventory for each succeeding year of the project. The shop’s tax rate is 35 percent and the project's required return is 9 percent. Refer to Table 8.3.

Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
NPV           $ _____________________

Should the company buy and install the machine press?
  

Yes

No

Answer 1