Capital Budgeting Problem - with Taxes

A framing shop is at capacity. Currently, the bottleneck is the framing press. They are considering purchasing a new press. This would allow them to increase production of frames. Facts are as follows:

	Cost of new press	$100,000
	Operating costs of new press (fixed)	$10,000 / year
	Units that could be produced	4,000 / year
	Selling Price per unit	$25
	VC per unit	$15

The press qualifies for 7 year MACRS and the framing shop's cost of capital is 12% and tax rate is 40%. The company plans to dispose the new press at the end of the fifth year for $10,000. Assume that new press will be purchased at the beginning of the year. All other cash flows occur at the end of the year.

Required:

Compute the NPV of this project, using a five-year analysis. Using the NPV criterion, is this project desirable?