McKinney Corporation is evaluating whether to replace one of its machines. The current machine was purchased 3 years ago for $10,000 and falls into the MACRS 5-year class. It has 1 year of remaining life and a $1,500 salvage value one year from now. The current market value of the older machine is $3,000. Alternatively, the company could purchase a new machine for $16,000. Delivery of the new machine would cost $300 and installation would cost $200. The new machine is expected to increase inventory needs by $800, and accounts payable is expected to increase by $500. The new machine falls in the MACRS 5-year class, has a 1-year economic life and a salvage value at the end of 1 year of $12,000. It is expected to increase revenue by $6,000 per year, and is expected to decrease costs by $3,000 per year. The firm has a 40% tax rate and a cost of capital of 11%. The MACRS 5-year class uses the following percentages: 20%, 32%, 19%, 12%, 11% and 6%. Round all CFs to the nearest dollar. (10 pts. each answer – put the correct sign!)
Calculate the overall NPV.