he RHPS Corporation specializes in the custom design, cutting, and

polishing of stone raw materials to make ornate building facings. These

stone facings are commonly used in the restoration of older mansions and

estates. Janet Weiss and Brad Majors, managers of the firm, are evaluating the

addition of a new stone-cutting machine to their plant. The machine's cost to

RHPS is $150,000. Installation and calibration costs will be $7,500. They do

not anticipate an increase in sales, but the reduction in the operating expenses

is estimated to be $50,000 annually. The machine falls under the MACRS

three-year depreciation schedule. The machine is expected to be obsolete

after five years. At the end of five years, Weiss and Majors expect the cash

received (less applicable capital gains taxes) from the sale of the obsolete

machine to offset the shutdown and dismantling costs. The RHPS cost of

capital is 10 percent, and the marginal tax rate is 35 percent.

a.

Calculate the net present value for the addition of this new machine.

Round all calculations to the nearest whole dollar.

b.

Would you recommend that Weiss and Majors go forward with this project?