Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $520,000 is estimated to result in $215,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $87,000. Refer to Table 8.3. The press also requires an initial investment in spare parts inventory of $25,000, along with an additional $3,000 in inventory for each succeeding year of the project. The shops tax rate is 25 percent and the project's required return is 10 percent. Calculate the NPV of this project. Table 8.3 Depreciation under Modified Accelerated Cost Recovery System (MACRS) Year Recovery Period Class 3 Years 5 Years 7 Years 10 Years 15 Years 20 Years 1 .3333 .2000 .1429 .1000 .0500 .03750 2 .4445 .3200 .2449 .1800 .0950 .07219 3 .1481 .1920 .1749 .1440 .0855 .06677 4 .0741 .1152 .1249 .1152 .0770 .06177 5 .1152 .0893 .0922 .0693 .05713 6 .0576 .0892 .0737 .0623 .05285 7 .0893 .0655 .0590 .04888 8 .0446 .0655 .0590 .04522 9 .0656 .0591 .04462 10 .0655 .0590 .04461 11 .0328 .0591 .04462 12 .0590 .04461 13 .0591 .04462 14 .0590 .04461 15 .0591 .04462 16 .0295 .04461 17 .04462 18 .04461 19 .04462 20 .04461 21 .02231 Depreciation is expressed as a percentage of the assets initial cost. These schedules are based on IRS Publication 946, entitled How to Depreciate Property. Details of depreciation are presented later in the chapter. Five-year depreciation actually carries over six years because the IRS assumes the purchase is made midyear