Geller Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $400,000 is estimated to result in $155,000 in annual pretax cost savings....

Geller Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $400,000 is estimated to result in $155,000 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 $68,000. The press also requires an initial investment in spare parts inventory of $13,000, along with an additional $1,800 in inventory for each succeeding year of the project. The shop’s tax rate is 22 percent and the project's required return is 10 percent. Refer to Table 8.3.

what is the NPV of this project?

Extracted text: TABLE 8.3 Depreciation under Modified Accelerated Cost Recovery System (MACRS) RECOVERY PERIOD CLASS 5 YEARS 7 YEARS YEAR 3 YEARS 10 YEARS 15 YEARS 20 YEARS 1 .3333 2000 .1429 .1000 .0500 .03750 2 .4445 3200 2449 .1800 .0950 .07219 3 .1481 .1920 .1749 .1440 .0855 .06677 4 .0741 .1152 .1249 .1152 .0770 .06177 .1152 .0893 .0922 .0693 .05713 6 .0576 .0892 .0737 .0623 .05285 7 .0893 .0655 .0590 ,04888 .0446 .0655 .0590 .04522 .0656 .0591 .04462 10 .0655 .0590 .04461 11 .0328 .0591 .04462 12 0590 .04461 13 .0591 .04462 14 .0590 .04461 15 .0591 .04462 16 .0295 .04461 17 .04462 18 .04461 19 .04462 20 .04461 21 .02231 Depreciation is expressed as a percent of the asset's cost. These schedules are based on the IRS publication 946. How to Depreciate Property and other details on depreciation are presented later in the chapter. Note that five-year depreciation actually carries over six years because the IRS assumes purchase is made in midyear.