Question

Geary Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $892,800 is estimated to result in $297,600 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 $130,200. The press also requires an initial investment in spare parts inventory of $37,200, along with an additional $5,580 in inventory for each succeeding year of the project.

If the shop's tax rate is 32 percent and its discount rate is 16 percent, what is the NPV for this project? (Do not round your intermediate calculations.)

a) $-99,796.55

b) $-96,509.84

c) $-185,205.21

d) $-104,786.38

e) $-94,806.73

Answer 1