Suppose Smith Manufacturing purchased a machine 10 years ago that had an estimated economic life of 10 years. The machine originally cost $122,000 and been fully depreciated. The company sold the old machine in $30,000. Smith Manufacturing is considering purchasing a new machine that costs $190,000. The machine´s installation and shipping costs will total $4,000. If accepted, the machine project will require an initial net working capital investment of $27,000. Smith plans to depreciate the machine on a straight-line basis over a period of 5 years. About a year ago, Smith paid $13,000 to a consulting firm to conduct a feasibility study of the new machine. Smith´s marginal tax rate is 35 percent.
a. Calculate the project´s net investment (NINV).
b. Calculate the annual straight-line depreciation for the project.
c.Calculate MACRS depreciation assuming this is a 3 years class asset (Appendix 9A