A specialpurpose machine tool set would cost $30,000. The entire capital expenditure ($30,000) is to be borrowed

Question:

A special‐purpose machine tool set would cost $30,000. The entire capital expenditure ($30,000) is to be borrowed with the stipulation that it be repaid by two equal end‐of‐year payments at 12% compounded annually. The tool is expected to provide annual savings (in material) of $45,000 for two years and is to be depreciated by the MACRS three‐year recovery period. This special machine tool will require annual O&M costs in the amount of $12,000. The salvage value at the end of two years is expected to be $9,000. Assuming a marginal tax rate of 40% and MARR of 15%, what is the net present worth of this project?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...

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