Starset Machine Shop is considering a 4-year project to improveits production efficiency. Buying a new machine press for $390,000is estimated to result in $148,000 in annual pretax cost savings.The press falls in the 5-year MACRS class, and it will have asalvage value at the end of the project of $48,000. The press alsorequires an initial investment in spare parts inventory of $21,000,along with an additional $3,150 in inventory for each succeedingyear of the project. The shop’s tax rate is 21 percent and itsdiscount rate is 8 percent. (MACRS schedule) Calculate the NPV ofthis project.
MACRS schedule
| Year | Three-Year | Five-Year | Seven-Year |
| 1 | 33.33% | 20.00% | 14.29% |
| 2 | 44.45% | 32.00% | 24.49% |
| 3 | 14.81% | 19.20% | 17.49% |
| 4 | 7.41% | 11.52% | 12.49% |
| 5 | | 11.52% | 8.93% |
| 6 | | 5.76% | 8.92% |
| 7 | | | 8.93% |
| 8 | | | 4.46% |
