The Gilbert Instrument Corporation is considering replacing thewood steamer it currently uses to shape guitar sides. The steamerhas 6 years of remaining life. If kept, the steamer will havedepreciation expenses of $650 for 5 years and $325 for the sixthyear. Its current book value is $3,575, and it can be sold on anInternet auction site for $4,150 at this time. If the old steameris not replaced, it can be sold for $800 at the end of its usefullife.
Gilbert is considering purchasing the Side Steamer3000, a higher-end steamer, which costs $11,000, and has anestimated useful life of 6 years with an estimated salvage value of$1,100. 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 would allow for anoutput expansion, so sales would rise by $2,000 per year; even so,the new machine's much greater efficiency would reduce operatingexpenses by $1,600 per year. To support the greater sales, the newmachine would require that inventories increase by $2,900, butaccounts payable would simultaneously increase by $700. Gilbert'smarginal federal-plus-state tax rate is 40%, and its WACC is14%.
What is the NPV of the project? Do not round intermediatecalculations. Round your answer to the nearest dollar.
