You are considering the purchase of a new machine for a project. Details of this potential purchase are provided below.
-The project life is 3 years.
The machine costs $191,000.
* You will pay cash for half of this machine immediately, and will borrow the remaining half at 6.5% annual rate compounded annually over 3 years.
* The machine will be depreciated using a seven year MACRS approach.
Annual O&M costs (expenses) of the machine are $24,000.
Annual labor savings (revenues) are $88,000.
Salvage value at the end of year 3 will be $44,000.
Working capital requirement is initially $22,000. Any investment in working capital will be recovered at the end of the project.
Assume an income tax rate and gains tax rate of 37%.
Find the NPW of this project based on a MARR of 16.9%.