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Purple Haze Machine Shop is considering a four-year project to improve its production efficlency. Buying a new machine press for $470,000 is estimated to result
Purple Haze Machine Shop is considering a four-year project to improve its production efficlency. Buying a new machine press for $470,000 is estimated to result in $190,000 in annual pretax cost savings. The press falls in the MACRS five-vear class, and it will have a salvage value at the end of the project of $80,000. The press also requires an initial investment in spare parts inventory of $20,000, along with an additional $2,500 in inventory for each succeeding year of the project. If the shop's tax rate is 35% and its discount rate is 9%, should the company buy and install the machine press? \begin{tabular}{l|l|} \hline Req Rate \\ Revenue t=1 \\ Revenue t=2 \\ Revenue t=3 \\ Revenue t=4 \\ Investment \\ Final book value \\ FA Sale value \\ \hline NWC req't \\ Costs & \\ Tax rate & \\ Depr. years & \\ \hline \end{tabular} ProjectIRRProjectNPVAccept/Reject function: 1RR function: NPV After Tax Salvage MACRS Depreciation Table Five-Year Sale Price Cost Basis less: Accumulated Depreciation Net Book Value Taxable Gain Tax After Tax Salvage
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