Alex Chungs Shop is considering a 7-year project to improve its production efficiency. Buying a new machine press for $1,676,000 is estimated to result in $492,000 in annual pretax cost savings. The press falls in the MACRS 7-year class, and it will have a salvage value at the end of the project of $584,000. The press also requires an initial investment in spare parts inventory of $33,000, along with an additional $1,200 in inventory for each succeeding year of the project. The inventory will return to its original level when the project ends. The shop's tax rate is 34 percent and its discount rate is 12 percent. Should the firm buy and install the machine press? Why or why not?

TABLE 1 MACRS Half-Year Convention Depreciation Rate for Recovery Period Year 3-Year 7-Year 10-Year 15-Year 20-Year 33.33% 44.45 14.81 7.41 00001WN 5-Year 20.00% 32.00 19.20 11.52 11.52 5.76 14.29% 24.49 17.49 12.49 8.93 8.92 8.93 4.46 1 2. 3 4. 5 6 7 8 9 10 11 12 13 14 15 16 10.00% 18.00 14.40 11.52 9.22 7.37 6.55 6.55 6.56 6.55 3.28 5.00% 9.50 8.55 7.70 6.93 6.23 5.90 5.90 5.91 5.90 5.91 5.90 5.91 5.90 5.91 2.95 3.750% 7.219 6.677 6.177 5.713 5.285 4.888 4.522 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 4.462 4.461 2.231 17 18 19 20 21