Starset Machine is considering a 4-year project to improve its production efficiency. Buying a new machine press for $470,000 is estimated to generate $196,000 in annual pretax cost savings. The press falls in 5-year MACRS class and will salvage value of $72,000 at the end of the project. The press also require an initial investment in spare part inventory of $37,000, along with additional $3,950 in inventory for each succeeding year of the project. Starset tax rate is 22% and the discount rate is 11%. a) Calculate the NPV of this project? b) Should the company buy or invest in this project? Yes or No?
Starset Machine is considering a 4-year project to improve its production efficiency. Buying a new machine press for $470,000 is estimated to generate $196,000 in annual pretax cost savings. The press falls in 5-year MACRS class and will salvage value of $72,000 at the end of the project. The press also require an initial investment in spare part inventory of $37,000, along with additional $3,950 in inventory for each succeeding year of the project. Starset tax rate is 22% and the discount rate is 11%. a) Calculate the NPV of this project? b) Should the company buy or invest in this project? Yes or No?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Starset Machine is considering a 4-year project to improve its production efficiency. Buying a new machine press for $470,000 is estimated to generate $196,000 in annual pretax cost savings. The press falls in 5-year MACRS class and will salvage value of $72,000 at the end of the project. The press also require an initial investment in spare part inventory of $37,000, along with additional $3,950 in inventory for each succeeding year of the project. Starset tax rate is 22% and the discount rate is 11%.
a) Calculate the
b) Should the company buy or invest in this project? Yes or No?
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