Calculate depreciation for each year-after-tax salvage value

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Reference no: EM13809573

Geary Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $681,600 is estimated to result in $227,200 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $99,400. The press also requires an initial investment in spare parts inventory of $28,400, along with an additional $4,260 in inventory for each succeeding year of the project. All investment in Net Working Capital is recovered at the end of the project's life.

Required:

If the shop's tax rate is 32 percent and its discount rate is 18 percent, what is the NPV for this project? (Do not round your intermediate calculations.).HINT: Calculate the depreciation for each year and use to get the after-tax salvage value of the assets. Calculate OCF using the depreciation for each year and use it to construct the CFFA. Now discount all the cash flows based on when they take place to get the NPV.

Reference no: EM13809573

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