The G Corporation is considering replacing the wood steamer itcurrently uses to shape guitar sides. The steamer has 6 years ofremaining life. If kept, the steamer will have depreciationexpenses of $350 for 6 years. Its current book value is $2,100, andit can be sold on an Internet auction site for $4,500 at this time.Thus, the annual depreciation expense is $2,100/6=$350 per year. Ifthe old steamer is not replaced, it can be sold for $800 at the endof its useful life. G is considering purchasing the Side Steamer3000, a higher-end steamer, which costs $8,000, and has anestimated useful life of 6 years with an estimated salvage value of$900. This steamer falls into the MACRS 5-years class, so theapplicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%,11.52%, and 5.76%. The new steamer is faster and allows for anoutput expansion, so sales would rise by $2,000 per year; the newmachine's much greater efficiency would reduce operating expensesby $1,400 per year. To support the greater sales, the new machinewould require that inventories increase by $2,900, but accountspayable would simultaneously increase by $700. Gilbert's marginalfederal-plus-state tax rate is 40%, and the project cost of capitalis 12%. Should it replace the old steamer?
What is the NPV of the project? Do not round intermediatecalculations. Round your answer to the nearest dollar.
