Your firm is evaluating a new robotic lathe for machining custom materials that will cost $495,000 to purchase, modify, and install. It is considered to be a four year project, and it falls into the five-year MACRS classification (see the appendix). The project is expected to produce an annual cost reduction of $185,000. The anticipated salvage value of the machine at the end of the four year project is $50,000. Because this machine is unlike all of the other equipment used by your firm, implementing this project will require an additional initial investment of $12,000 in spare parts, with an additional $5,000 of maintenance expenses in each following year. Assume that the original investment in working capital will be recaptured at the end of the projects life. Assuming a marginal tax rate of 40% and a discount rate (risk-adjusted cost of capital) of 16%, should you purchase the new system? Be sure to calculate the NPV, IRR, MIRR, payback, discounted payback, and BCR.

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