Question
The Gazette is considering the purchase of a new printing press to be used over the next three years. The press has a base price
The Gazette is considering the purchase of a new printing press to be used over the next three years. The press has a base price of $900,000. The machine has a five year useful life and the firm plans to depreciate the machine using straight line depreciation over the useful life. The Gazette plans to sell the machine at the end of the project (i.e. end of year 3) for an estimated salvage value of $225,000. The press would require an increase in working capital of $16,000. The press is expected to save the firm 400,000 in before tax operating costs each year and the Gazette's tax rate and WACC are 35% and 12%, respectively. What is the NPV of purchasing the press?
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