1 2 3 Calculate Required Savings An upgrade in manufacturing equipment results in production cost-savings and has an installation cost of $1,235,000. The equipment can be used for the life of a proposed 5-year project but will depreciate under a 3-year MACRS schedule for tax purposes. The required initial net working capital investment is $75,000, the tax rate is 24.5%, and the project discount rate is 9.75%. The equipment has an estimated Year 5 salvage value of $125,000. What level of pretax cost savings do we require for this project to be profitable? Input area: Installed cost Salvage value Initial NWC Tax rate Required return MACRS Output area: 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 Aftertax salvage value Year 1 depreciation Year 2 depreciation Year 3 depreciation Year 4 depreciation Year 1 depreciation CF Year 2 depreciation CF Year 3 depreciation CF Year 4 depreciation CF Initial cash outlay NPV net of OCF Pretax cost savings En 2 No