Boyertown Industrial Tools is considering a three-year project to improve its production efficiency. Buying a new machine press for $611,000 is estimated to result in $193,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $162,000. The press also requires an initial investment in spare parts inventory of $19,000, along with an additional $2,000 in inventory for each succeeding year of the project. The tax rate is 35 percent. The company currently has a $1,000,000 loan outstanding with an interest rate of 15%, and 100,000 shares of stock trading at $31.58/share. The current annual dividend is $2.00/share,and the expected growth rate in dividends is 6% Should the company buy and install the machine press? Why or why not?

Table 9.7 Modified ACRS depreciation allowances

		Yes; the NPV is $51,613
		Yes; the NPV is $45,607
		No; the NPV is -$22,311
		No; the NPV is -$52,918
		No; the NPV is -$74,945