Project to improve its production efficiency

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Reference no: EM13949086

Purple Haze Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $410,000 is estimated to result in $160,000 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 $69,000. The press also requires an initial investment in spare parts inventory of $14,000, along with an additional $1,900 in inventory for each succeeding year of the project. The shop’s tax rate is 30 percent and its discount rate is 8 percent. Calculate the NPV of this project. Should the company buy and install the machine press?

Reference no: EM13949086

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