Cost-Cutting Proposals

Geary Machine Shop is considering a four-yearproject to improve its production efficiency. Buying a new machine press for$480,000 is estimated to result in $180,000 in annual pretax cost savings. The pressfalls in the MACRS five-year class, and it will have a salvage value at the end of theproject of $70,000. The press also requires an initial investment in spare partsinventory of $20,000. along with an additional $3,000 in inventory for eachsucceeding year of the project. If the shops tax rate is 35 percent and its discountrate is 15 percent, should the company buy and install the machine press?

Not execel