Question
Illinois Screen Company is evaluating the purchase of a new cutting machine. The machinery will $400,000 and will last for the five-year length of the
Illinois Screen Company is evaluating the purchase of a new cutting machine. The machinery will $400,000 and will last for the five-year length of the project. Government incentives will allow the company to use Bonus Depreciation for the purchase. At the end of the project the machine can be sold for $50,000. It is estimated that the first year cost savings from using the new machine will be $100,000 with that amount increasing by 4% for each year of the project. The company borrows at 4%, but it has not yet decided if it will pay cash or finance the purchase. The company will initially need supplies of $8,000 to support the equipment, with that amount decreasing $750 each year. The companys Tax Rate is 22%, while the required return for projects of this sort is 10%. What is the NPV of the project? (Round your answer to the nearest dollar; $1,234.56 should be entered as $1,235)
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