You are considering a new project to bring the manufacture of boxes
in-house.  The project will require purchasing equipment with total
costs of $3 million.  The equipment will last for 10 years; its scrap
value at that time will be zero.  Depreciation is straight-line over
10 years.  Bringing the box manufacturing process in-house will save
$300,000 per year in box costs.  The corporate tax rate is 35%.  The
appropriate discount rate is 12%.
 
1.Calculate the NPV of this project.  Should you accept the project? 
2.What is the present value of the cost savings of the machine?
3.What is the present value of the depreciation tax shield?

MMP --

The easiest way to set this one up is to create a row in an Excel
spreadsheet with the NPV factor, then each of the year's contributions
can be divided by it to get the present value contribution.

Of course our depreciation savings comes back as the net of the tax
reduction -- or 35% of each year's straightline $300,000:
http://www.mooneyevents.com/box.xls

As you see in the right-hand column, the $3 million investment today
only yields an NPV of about $2.29 million so the project is NOT a go. 
Your discount rate is simply too high.  (Interestingly enough, even at
6% this project still has a small, but negative NPV.)

Best regards,

Omnivorous-GA